PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 5, 1996
$442,500,000
FIRST OMNI BANK CREDIT CARD MASTER TRUST
Class A 6.65% Asset Backed Certificates, Series 1996-A
FIRST OMNI BANK, N.A.
Transferor and Servicer
-------------
EACH CLASS A 6.65% ASSET BACKED CERTIFICATE, SERIES 1996-A (COLLECTIVELY, THE
"CLASS A CERTIFICATES") OFFERED HEREBY WILL REPRESENT THE RIGHT TO RECEIVE
CERTAIN PAYMENTS FROM THE FIRST OMNI BANK CREDIT CARD MASTER TRUST ("TRUST
I"), CREATED PURSUANT TO A POOLING AND SERVICING AGREEMENT BETWEEN FIRST OMNI
BANK, N.A. ("FIRST OMNI"), AS TRANSFEROR AND SERVICER, AND THE BANK OF NEW
YORK, AS TRUSTEE. CERTAIN CAPITALIZED TERMS USED IN THIS PROSPECTUS
SUPPLEMENT ARE DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. PLEASE REFER TO THE "INDEX OF DEFINED TERMS FOR
PROSPECTUS SUPPLEMENT" AND THE "INDEX OF DEFINED TERMS FOR PROSPECTUS" FOR
A LISTING OF THE PAGES ON WHICH SOME OF THE TERMS ARE DEFINED. THE
PROPERTY OF TRUST I INCLUDES RECEIVABLES (THE "RECEIVABLES") GENERATED
FROM TIME TO TIME IN A PORTFOLIO OF MASTERCARD AND VISA REVOLVING
CREDIT CARD ACCOUNTS (THE "ACCOUNTS"), ALL MONIES DUE OR TO BECOME DUE
IN PAYMENT OF THE RECEIVABLES, ALL PROCEEDS OF THE RECEIVABLES AND
PROCEEDS OF CREDIT INSURANCE POLICIES RELATING TO THE RECEIVABLES,
ALL MONIES IN CERTAIN BANK ACCOUNTS OF TRUST I AND THE RIGHT TO
RECEIVE INTERCHANGE ALLOCABLE TO THE CERTIFICATES, AS DESCRIBED
HEREIN. CONCURRENTLY WITH THE ISSUANCE OF THE CLASS A CERTIFICATES,
TRUST I WILL ISSUE $25,000,000 AGGREGATE INITIAL PRINCIPAL AMOUNT
OF CLASS B FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-A
(COLLECTIVELY, THE "CLASS B CERTIFICATES" AND, TOGETHER WITH THE
CLASS A CERTIFICATES, THE "CERTIFICATES"). IN ADDITION, THE
COLLATERAL INTEREST WILL BE ISSUED IN THE INITIAL AMOUNT OF
$32,500,000 AND WILL BE SUBORDINATED TO THE CERTIFICATES AS
DESCRIBED HEREIN. FIRST OMNI INITIALLY WILL OWN THE REMAINING
UNDIVIDED INTEREST IN TRUST I NOT REPRESENTED BY THE
CERTIFICATES, THE COLLATERAL INTEREST AND OTHER INTERESTS
ISSUED BY TRUST I FROM TIME TO TIME AND WILL SERVICE THE
RECEIVABLES. FIRST OMNI MAY FROM TIME TO TIME OFFER OTHER
SERIES OF CERTIFICATES THAT EVIDENCE UNDIVIDED INTERESTS
IN CERTAIN ASSETS OF TRUST I, WHICH MAY HAVE TERMS
SIGNIFICANTLY DIFFERENT FROM THE CLASS A CERTIFICATES,
AND MAY ESTABLISH OTHER TRUSTS FROM TIME TO TIME HAVING
ASSETS SUBSTANTIALLY SIMILAR TO THE ASSETS OF TRUST I.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CLASS A CERTIFICATES, AND THERE
IS NO ASSURANCE THAT ONE WILL DEVELOP. POTENTIAL INVESTORS SHOULD CONSIDER,
AMONG OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS"
COMMENCING ON PAGE 22 IN THE PROSPECTUS.
-------------
THE CERTIFICATES REPRESENT INTERESTS IN TRUST I ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF FIRST OMNI OR ANY AFFILIATE THEREOF. A
CERTIFICATE IS NOT A DEPOSIT AND NEITHER THE CERTIFICATES NOR THE
UNDERLYING ACCOUNTS OR RECEIVABLES ARE INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRANSFEROR(1)(2)
------------------ ------------------ ------------------
PER CLASS A CERTIFICATE........................................ 99.828125% 0.300000% 99.528125%
TOTAL.......................................................... $441,739,453.13 $1,327,500.00 $440,411,953.13
(1) PLUS ACCRUED INTEREST, IF ANY, AT THE CLASS A RATE FROM APRIL 23, 1996.
(2) BEFORE DEDUCTION OF EXPENSES ESTIMATED TO BE $932,000.
--------------
THE CLASS A CERTIFICATES ARE OFFERED BY THE UNDERWRITERS WHEN, AS AND IF
ISSUED BY TRUST I AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO THE
UNDERWRITERS' RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT
THE CLASS A CERTIFICATES WILL BE DELIVERED IN BOOK-ENTRY FORM ON OR ABOUT APRIL
23, 1996, THROUGH THE FACILITIES OF THE DEPOSITORY TRUST COMPANY, CEDEL BANK,
SOCIETE ANONYME, AND THE EUROCLEAR SYSTEM.
CS First Boston
Bear, Stearns & Co. Inc.
Merrill Lynch & Co.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 9, 1996
Interest will accrue on the Class A Certificates from April 23, 1996 (the
"Closing Date") through June 14, 1996 and with respect to each Interest Period
thereafter, at the rate of 6.65% per annum (the "Class A Rate"). Interest with
respect to the Certificates will be distributed on June 17, 1996 and on the 15th
day of each month thereafter (or, if such 15th day is not a business day, the
next succeeding business day) (each, a "Distribution Date"). Principal on the
Class A Certificates is scheduled to be distributed on the April 2001
Distribution Date (the "Class A Scheduled Payment Date"), but may be paid
earlier or later under the circumstances described herein. Principal payments
will not be made with respect to Class B Certificates until the principal of the
Class A Certificates has been paid in full. See "Maturity Assumptions."
The Class B Certificates will be subordinated to the Class A Certificates,
and the Collateral Interest will be subordinated to the Class A Certificates and
the Class B Certificates, as described herein.
--------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------
The Class A Certificates offered hereby constitute a separate Series of
certificates being offered by Trust I from time to time pursuant to its
Prospectus dated April 5, 1996. This Prospectus Supplement does not contain
complete information about the offering of the Class A Certificates. Additional
information is contained in the Prospectus and purchasers are urged to read both
this Prospectus Supplement and the Prospectus in full. Sales of the Class A
Certificates may not be consummated unless the purchaser has received both this
Prospectus Supplement and the Prospectus.
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SUMMARY OF TERMS
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE
DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
A LISTING OF THE PAGES ON WHICH SOME OF THE TERMS ARE DEFINED IS FOUND IN THE
"INDEX OF DEFINED TERMS FOR PROSPECTUS SUPPLEMENT" AND THE "INDEX OF DEFINED
TERMS FOR PROSPECTUS."
TYPE OF SECURITIES................ Class A 6.65% Asset Backed Certificates, Series 1996-A
(the "Class A Certificates") and Class B Floating Rate
Asset Backed Certificates, Series 1996-A (the "Class B
Certificates," and together with the Class A
Certificates, the "Certificates"). Only the Class A
Certificates are offered hereby.
CLASS STRUCTURE................... The Class A and Class B Certificates differ in terms of
priorities and are expected to differ in terms of
ratings. In addition, the Class B Certificates are not
offered hereby. The Class B Certificates are
subordinated to the Class A Certificates to the extent
described herein in order to provide credit
enhancement for the Class A Certificates. The
Collateral Interest (which is not offered hereby) is
subordinated to both the Class A and the Class B
Certificates to the extent described herein in order
to provide credit enhancement. (See "Description of
Certificates -- Subordination" and " Application of
Collections.") See "Risk Factors -- Effect of
Subordination" in the Prospectus for a discussion of
the risks associated with purchasing certificates of a
subordinated class. Also see "Class A Certificate
Rating" and "Class B Certificate Rating" below in this
Summary of Terms.
TRUST............................. The First Omni Bank Credit Card Master Trust ("Trust I")
will be formed pursuant to a pooling and servicing
agreement (the "Agreement"), between First Omni Bank,
N.A. ("First Omni" or the "Bank"), as transferor (the
"Transferor") and as servicer of the Receivables, and
The Bank of New York, as trustee (the "Trustee"), as
supplemented by the supplement relating to the
Certificates (the "Series 1996-A Supplement"). As used
in this Prospectus Supplement, the term "Holders"
refers to holders of the Certificates, the term "Class
A Holders" refers to holders of the Class A
Certificates, the term "Class B Holders" refers to
holders of the Class B Certificates and the term
"Agreement" (unless the context requires otherwise)
refers to the Agreement as supplemented by the Series
1996-A Supplement.
TRUST I ASSETS.................... The property of Trust I will include receivables (the
"Receivables") arising under certain
MasterCard-Registered Trademark- and
VISA-Registered Trademark-(1) revolving credit card
accounts designated to Trust I by the Transferor (the
"Accounts") which are included in that portion of the
portfolio of MasterCard and VISA accounts owned by the
Bank (the "Bank Portfolio") and classified by the Bank
as
- ------------------------
(1) MasterCard-Registered Trademark- and Visa-Registered Trademark- are
federally registered servicemarks of MasterCard International Inc. and Visa
U.S.A., Inc., respectively.
S-3
falling within certain specified programs (the
"Identified Portfolio"), all monies due or to become
due in payment of the Receivables, all proceeds of the
Receivables and proceeds of credit insurance policies
relating to the Receivables, the right to receive
Interchange allocable to the Certificates (which right
may not be afforded to other Series issued by Trust I)
and all monies on deposit in certain bank accounts of
Trust I (other than investment earnings on such
amounts, except as otherwise specified herein), and
any Enhancement issued with respect to any Series. The
Holders will not be entitled to the benefits of any
Enhancement issued with respect to any Series other
than Series 1996-A, nor will the holders of
certificates of other Series be entitled to the
benefits of any Enhancement issued with respect to
Series 1996-A.
At the formation of Trust I, the Transferor will convey
to the Trustee on behalf of Trust I all Receivables
existing under the Accounts in the Identified
Portfolio that are designated to Trust I by the
Transferor and satisfy the eligibility criteria pro-
vided in the Agreement as applied on April 1, 1996
(the "Cut-Off Date") and will convey to the Trustee
all Receivables arising under such Accounts from time
to time thereafter until the termination of Trust I.
In addition, pursuant to the Agreement, the Bank may
or may be obligated to (subject to certain limitations
and conditions) designate other Additional Accounts
for inclusion in Trust I. Also, the Agreement provides
that in lieu of Additional Accounts or in addition
thereto, the Bank may, subject to certain conditions,
include Participations in Trust I. Any conveyance by
the Transferor to Trust I of Receivables in Additional
Accounts (other than Automatic Additional Accounts) or
Participations is subject to the satisfaction of
several conditions. See "The Receivables" herein and
"Risk Factors -- Addition of Trust Assets -- Effect on
Credit Quality" and "Description of the Certificates
-- Addition of Trust Assets" in the Prospectus.
CERTIFICATE INTEREST AND
PRINCIPAL........................ Each of the Class A Certificates offered hereby and each
of the Class B Certificates represents the right to
receive certain payments from the assets of Trust I.
Trust I's assets will be allocated among the Class A
Holders (the "Class A Investor Interest"), the Class B
Holders (the "Class B Investor Interest"), the
Collateral Interest Holder (the "Collateral Interest,"
and together with the Class A Investor Interest and
the Class B Investor Interest, the "Investor
Interest"), the interest of the holders of other
undivided interests in Trust I issued pursuant to the
Agreement and applicable Series Supplements and the
Transferor (the "Transferor Interest"), as described
below. The Collateral Interest in the initial amount
of $32,500,000 (which amount represents 6.5% of the
amount of the initial Investor Interest) constitutes
Credit Enhancement for the Certificates. The provider
of such Credit Enhancement is referred to herein as
the "Collateral Interest Holder." Allocations will be
made to the Collateral Interest, and the Collateral
Interest Holder will have voting and certain other
rights, as if the Collateral Interest
S-4
were a subordinated class of Certificates. The
Transferor Interest will represent the right to the
assets of Trust I not allocated to the Class A
Investor Interest, the Class B Investor Interest, the
Collateral Interest or the holders of other undivided
interests in Trust I. The principal amount of the
Transferor Interest will fluctuate as the amount of
Receivables in Trust I changes from time to time.
The Class A Certificates will represent the right to
receive from the assets of Trust I allocated to the
Class A Certificates funds up to (but not in excess
of) the amounts required to make (a) payments of
interest accruing from April 23, 1996 (the "Closing
Date") through June 14, 1996, and with respect to each
Interest Period thereafter, at the rate of 6.65% per
annum (the "Class A Rate"), and (b) payments of
principal on the Class A Scheduled Payment Date or,
under certain limited circumstances, during the Rapid
Amortization Period, to the extent of the Class A
Investor Interest, which may be less than the unpaid
principal balance of the Class A Certificates in
certain circumstances described herein.
The Class B Certificates will represent the right to
receive, from the assets of Trust I allocated to the
Class B Certificates, funds up to (but not in excess
of) the amounts required to make (a) payments of
interest accruing from the Closing Date through May
14, 1996 and from May 15, 1996 through June 16, 1996
and with respect to each Interest Period thereafter,
at a rate agreed to between the Transferor and the
purchasers of the Class B Certificates not greater
than 1% per annum above the London interbank offered
rate for one-month United States dollar deposits
("LIBOR"), determined as described herein, prevailing
on the related LIBOR Determination Date (such rate,
the "Class B Rate") and (b) payments of principal on
the May 2001 Distribution Date (the "Class B Scheduled
Payment Date") or, under certain limited
circumstances, during the Rapid Amortization Period,
to the extent of the Class B Investor Interest, which
may be less than the unpaid principal balance of the
Class B Certificates in certain circumstances
described herein. No principal will be paid to the
Class B Holders until the Class A Investor Interest is
paid in full.
The aggregate principal amount of the Class A Investor
Interest and the Class B Investor Interest will,
except as otherwise provided herein, remain fixed at
$442,500,000 and $25,000,000, respectively. The Class
A Investor Interest will decline in certain
circumstances if the Default Amounts allocated to the
Class A Certificates exceed funds allocable thereto as
described herein and the Class B Investor Interest and
the Collateral Interest are zero. The Class B Investor
Interest will decline in certain circumstances as a
result of (a) the reallocation of collections of
Principal Receivables otherwise allocable to the Class
B Investor Interest to fund certain payments in
respect of the Class A Certificates and (b) the
allocation to the Class B Investor Interest of certain
Default Amounts, including
S-5
such amounts otherwise allocable to the Class A
Investor Interest when the Collateral Interest is
zero. During the Controlled Accumulation Period, for
purposes of allocating collections of Finance Charge
Receivables and Default Amounts with respect to each
Monthly Period, the Class A Investor Interest will be
further reduced by the amount on deposit in the
Principal Funding Account from time to time (as so
reduced, the "Class A Adjusted Investor Interest" and
together with the Class B Investor Interest and the
Collateral Interest, the "Adjusted Investor
Interest").
The Class A Certificates, the Class B Certificates and
the Collateral Interest will each include the right to
receive (but only to the extent needed to make
required payments under the Agreement) varying
percentages of collections of Finance Charge
Receivables and Principal Receivables and will be
allocated varying percentages of Default Amounts
during each calendar month (a "Monthly Period"),
provided that the first Monthly Period shall commence
on the Cut-Off Date and end on May 31, 1996.
Collections of Finance Charge Receivables and Default
Amounts at all times, and collections of Principal
Receivables during the Revolving Period, will be
allocated to the Investor Interest based on the
Floating Investor Percentage and will be further
allocated among the Class A Investor Interest, the
Class B Investor Interest and the Collateral Interest
based on the Class A Floating Allocation, the Class B
Floating Allocation and the Collateral Floating
Allocation, respectively, applicable during the
related Monthly Period. Collections of Principal
Receivables during the Controlled Accumulation Period
and the Rapid Amortization Period will be allocated to
the Investor Interest based on the Fixed Investor
Percentage and will be further allocated among the
Class A Investor Interest, the Class B Investor
Interest and the Collateral Interest based on the
Class A Fixed Allocation, the Class B Fixed Allocation
and the Collateral Fixed Allocation, respectively. See
"Description of the Certificates -- Allocation
Percentages" and "-- Pay Out Events" herein and
"Description of the Certificates -- Pay Out Events" in
the Prospectus.
The Transferor initially will own the Transferor
Interest. The certificate that represents the
Transferor Interest (the "Transferor Certificate") or,
if provided in the relevant Series Supplement,
certificates of any Series (or both), may be tendered
to the Trustee and, upon satisfaction of certain
conditions, the Trustee will issue one or more new
Series, as described in "Description of the
Certificates -- Exchanges" in the Prospectus. The
certificates of any new Series will be issued pur-
suant to the Agreement and a related Series
Supplement. See "Description of the Certificates"
herein and in the Prospectus.
The Transferor also may from time to time cause the
Trustee to sell Purchased Interests to one or more
purchasers. Any such sale will take place pursuant to
one or more agreements which will specify terms
similar to Principal Terms for the applicable
Purchased Interests and may grant the purchasers of
such
S-6
interests notice and consultation rights with respect
to rights or actions of the Trustee. Any sale of
Purchased Interests in the assets of a Trust will be
subject to the satisfaction of the same conditions
(including Rating Agency confirmations) as for an
Exchange, as appropriately adjusted to apply to the
relevant Purchased Interest rather than new Series.
See "Description of the Certificates -- Exchanges" in
the Prospectus.
The final distribution of principal and interest on the
Certificates will be made no later than the September
2003 Distribution Date in the manner provided in
"Description of the Certificates -- Final Payment of
Principal; Termination" in the Prospectus. Series
1996-A will terminate on the earliest to occur of (a)
the Distribution Date on which the Investor Interest
is paid in full, (b) the September 2003 Distribution
Date or (c) the Trust Termination Date (such earliest
to occur, the "Series 1996-A Termination Date"). After
the Series 1996-A Termination Date, no further
principal or interest payments will be made on the
Certificates (except as described in "Description of
the Certificates -- Final Payment of Principal;
Termination" in the Prospectus).
RECEIVABLES....................... The Receivables arise in Accounts in the Identified
Portfolio that are designated by the Transferor for
Trust I and that satisfy the eligibility criteria set
forth in the Agreement as of the Cut-Off Date. The
Receivables consist of Principal Receivables and
Finance Charge Receivables. In addition, certain
amounts of Interchange attributed to cardholder
charges for goods and services in the Accounts will be
allocated to the Certificates and treated as Finance
Charge Receivables. See "First Omni's Credit Card
Activities -- Interchange" in the Prospectus.
The aggregate amount of Receivables in the Accounts as
of the beginning of the day on the Cut-Off Date was
$656,317,456.62, comprised of $637,964,421.84 of
Principal Receivables and $18,353,034.78 of Finance
Charge Receivables. The amount of Finance Charge
Receivables will not affect the amount of the Investor
Interest represented by the Certificates and the Col-
lateral Interest or the amount of the Transferor
Interest, all of which are determined on the basis of
the amount of Principal Receivables in Trust I. The
aggregate amount of Principal Receivables in Trust I
evidenced by the Certificates and the Collateral
Interest will never exceed the amount of the Investor
Interest regardless of the total amount of Principal
Receivables in Trust I at any time.
DENOMINATIONS..................... Beneficial interests in the Class A Certificates will be
offered for purchase in denominations of $1,000 and
integral multiples thereof.
REGISTRATION OF CERTIFICATES...... The Class A Certificates initially will be represented
by Certificates registered in the name of Cede, as the
nominee of DTC. No owner of a Class A Certificate will
be entitled to receive a Definitive Certificate,
except under the limited circumstances described
herein. Owners of Class A Certificates may elect to
hold their Certificates through DTC (in the United
States) or
S-7
Cedel or Euroclear (in Europe). Transfers will be made
in accordance with the rules and operating procedures
described herein. See "Description of the Certificates
-- Definitive Certificates" in the Prospectus.
SERVICING FEE..................... The Servicer will receive a monthly fee as servicing
compensation from Trust I on each Transfer Date. On each
Transfer Date on which Transferor or Trustee is
Servicer, Servicer Interchange with respect to the
related Monthly Period that is on deposit in the
Finance Charge Account will be withdrawn from the
Finance Charge Account and paid to the Servicer in
respect of the Monthly Investor Servicing Fee. In
addition, the Class A Servicing Fee, the Class B
Servicing Fee and the Collateral Interest Servicing
Fee will be paid on each Transfer Date as described
under "Description of the Certificates Servicing
Compensation and Payment of Expenses." See also
"Description of the Certificates -- Servicing
Compensation and Payment of Expenses" in the
Prospectus.
INTEREST.......................... Interest on the Class A Certificates for each Interest
Period will be distributed on June 17, 1996, and on the
15th day of each month thereafter, or if such day is
not a business day, on the next succeeding business
day (each, a "Distribution Date"), in an amount equal
to the product of (i) one-twelfth, (ii) the Class A
Rate and (iii) the outstanding principal balance of
the Class A Certificates as of the preceding Record
Date, provided that on the first Distribution Date
interest will be distributed on the Class A
Certificates in the amount of $4,250,458.33. Interest
on the Class A Certificates will be calculated on the
basis of a 360-day year of twelve 30-day months.
Interest for any Distribution Date due but not paid on
such Distribution Date will be payable on the next
succeeding Distribution Date, together with additional
interest on such amount at the Class A Rate plus 2%
per annum.
The "Interest Period" with respect to any Distribution
Date, will be the period from and including the
previous Distribution Date through the day preceding
such Distribution Date, except the initial Interest
Period will be the period from and including the
Closing Date through the day preceding the initial
Distribution Date. Interest payments on each
Distribution Date will be funded from the portion of
Finance Charge Receivables collected during the
preceding Monthly Period (or with respect to the first
Distribution Date, from and including the Cut Off Date
through May 31, 1996) and certain other available
amounts (a) with respect to the Class A Certificates,
allocated to the Class A Investor Interest, and, if
necessary, from Excess Spread and Reallocated
Principal Collections (to the extent available), (b)
with respect to the Class B Certificates, allocated to
the Class B Investor Interest and, if necessary, from
Excess Spread and Reallocated Collateral Principal
Collections (to the extent available) and (c) with
respect to the Collateral Interest, from Excess
Spread. See "Description of the Certificates --
Reallocation of Cash Flows" and "Application
S-8
of Collections -- Payment of Interest, Fees and Other
Items" herein and "Risk Factors -- Limited Credit
Enhancement" in the Prospectus.
REVOLVING PERIOD.................. The "Revolving Period" for the Certificates means the
period from and including the Closing Date to, but not
including, the commencement of the earlier of (a) the
Controlled Accumulation Period and (b) the Rapid
Amortization Period. During the Revolving Period,
Available Investor Principal Collections otherwise
allocable to the Investor Interest will, subject to
certain limitations and unless a reduction in the
Required Collateral Interest has occurred, be treated
as Shared Principal Collections and allocated to the
holders of other Series of certificates within Group
One issued and outstanding or, subject to certain
limitations, paid to the Transferor or deposited into
the Excess Funding Account. See "Description of the
Certificates -- Principal Payments." See "Description
of the Certificates -- Pay Out Events" for a
discussion of the events which might lead to the
termination of the Revolving Period prior to the
commencement of the Controlled Accumulation Period.
CONTROLLED ACCUMULATION PERIOD.... Unless a Pay Out Event occurs, the controlled
accumulation period for the Certificates (the
"Controlled Accumulation Period") is scheduled to
begin at the close of business on March 31, 2000.
Subject to the conditions set forth under "Description
of the Certificates -- Postponement of Controlled
Accumulation Period," the day on which the Revolving
Period ends and the Controlled Accumulation Period
begins may be delayed to not later than the close of
business on February 28, 2001. The Controlled
Accumulation Period will end on the earliest of (i)
the commencement of the Rapid Amortization Period,
(ii) payment of the Investor Interest in full and
(iii) the Series 1996-A Termination Date. During the
Controlled Accumulation Period, prior to the payment
of the Class A Investor Interest in full, amounts
equal to the least of (a) Available Investor Principal
Collections for the related Monthly Period, (b) the
sum of the Controlled Accumulation Amount for such
Monthly Period and any portion of the Controlled
Accumulation Amount for any prior Monthly Period that
has not yet been deposited (such sum, the "Controlled
Deposit Amount" for such Monthly Period) and (c) the
Class A Adjusted Investor Interest on such Transfer
Date will be deposited monthly in a trust account
established by the Servicer (the "Principal Funding
Account") on each Transfer Date beginning with the
Transfer Date in the month following the month in
which the Controlled Accumulation Period begins until
the Principal Funding Account Balance is equal to the
Class A Investor Interest. On each Transfer Date
during the Controlled Accumulation Period beginning
with the Transfer Date after the one on which the
Class A Investor Interest has been provided for, an
amount equal to the lesser of (a) Available Investor
Principal Collections for the related Monthly Period
and (b) the Class B Investor Interest on such Transfer
Date will
S-9
be deposited into the Distribution Account for
distribution to the Class B Holders until the Class B
Investor Interest has been paid in full. If, for any
Monthly Period, the Available Investor Principal
Collections for such Monthly Period exceed the sum of
the Class A Monthly Principal and the Class B Monthly
Principal for the related Transfer Date, the amount of
such excess will be first paid to the Collateral
Interest Holder to the extent that the Collateral
Interest exceeds the Required Collateral Interest and
then will be treated as Shared Principal Collections
and allocated to the holders of other Series of
certificates within Group One issued and outstanding
or, subject to certain limitations, paid to the holder
of the Transferor Certificate or deposited into the
Excess Funding Account. See "Description of the
Certificates -- Application of Collections." Also see
"Prospectus Summary -- Controlled Accumulation Period"
in the Prospectus for a general description of the
purpose of this feature and its effect on
Certificateholders.
Prior to the payment of the Class A Investor Interest in
full, all funds on deposit in the Principal Funding
Account will be invested at the direction of the
Servicer by the Trustee in certain Permitted
Investments. Investment earnings (net of investment
losses and expenses) on funds on deposit in the
Principal Funding Account (the "Principal Funding
Investment Proceeds") during the Controlled
Accumulation Period will be used to pay interest on
the Class A Certificates in an amount up to, for each
Transfer Date, the product of (a) one-twelfth, (b) the
Class A Rate in effect with respect to the related
Interest Period and (c) the Principal Funding Account
Balance as of the Record Date preceding such Transfer
Date (the "Class A Covered Amount"). If, for any
Transfer Date, the Principal Funding Investment
Proceeds are less than the Class A Covered Amount, the
amount of such deficiency (the "Class A Principal
Funding Investment Shortfall") shall be paid, to the
extent available, from the Reserve Account and, if
necessary, from Excess Spread and Reallocated
Principal Collections.
Funds on deposit in the Principal Funding Account will
be available to pay the Class A Holders in respect of
the Class A Investor Interest on the Class A Scheduled
Payment Date. If the aggregate principal amount of
deposits made to the Principal Funding Account is
insufficient to pay the Class A Investor Interest in
full on the Class A Scheduled Payment Date, the Rapid
Amortization Period will commence. Although it is
anticipated that during the Controlled Accumulation
Period prior to the payment of the Class A Investor
Interest in full, funds will be deposited in the
Principal Funding Account in an amount equal to the
applicable Controlled Deposit Amount on each Transfer
Date and that scheduled principal will be available
for distribution to the Class A Holders on the Class A
Scheduled Payment Date, no assurance can be given in
that regard. See "Maturity Assumptions" in the
Prospectus and herein.
S-10
If a Pay Out Event occurs during the Controlled
Accumulation Period, the Rapid Amortization Period
will commence, and any amounts on deposit in the
Principal Funding Account will be paid to the Class A
Holders on the Distribution Date in the month
following the commencement of the Rapid Amortization
Period.
Other Series offered by Trust I may or may not have
amortization or accumulation periods like the
Controlled Accumulation Period for the Certificates,
and such periods may have different lengths and begin
on different dates than such Controlled Accumulation
Period. Thus, certain Series may be in their revolving
periods while others are in periods during which
collections of Principal Receivables are distributed
to or held for the benefit of certificateholders of
such other Series. In addition, other Series may
allocate Principal Receivables based upon different
investor percentages. See "Description of the
Certificates -- Exchanges" in the Prospectus for a
discussion of the potential terms of any other Series.
RAPID AMORTIZATION PERIOD......... During the period from the day on which a Pay Out Event
has occurred and ending on the earlier of (a) the
payment of the Investor Interest in full, (b) the
Series 1996-A Termination Date and (c) the Trust
Termination Date (the "Rapid Amortization Period"),
Available Investor Principal Collections will be
distributed monthly on each Distribution Date to the
Class A Holders and, following payment of the Class A
Investor Interest in full, to the Class B Holders and,
following payment of the Class B Investor Interest in
full, to the Collateral Interest Holder beginning with
the Distribution Date in the month following the
commencement of the Rapid Amortization Period. See
"Description of the Certificates -- Pay Out Events"
for a discussion of the events which might lead to the
commencement of the Rapid Amortization Period and
"Prospectus Summary -- Rapid Amortization Period" in
the Prospectus for a general discussion of the purpose
and effect on Certificateholders of this feature.
SUBORDINATION OF THE CLASS B
CERTIFICATES AND THE COLLATERAL
INTEREST......................... The Class B Certificates and the Collateral Interest
will be subordinated, as described herein, to the extent
necessary to fund certain payments with respect to the
Class A Certificates as described herein. In addition,
the Collateral Interest will be subordinated to the
extent necessary to fund certain payments with respect
to the Class B Certificates. If the Class B Investor
Interest and the Collateral Interest are reduced to
zero, the Class A Holders will bear directly the
credit and other risks associated with their interest
in Trust I. If the Collateral Interest is reduced to
zero, the Class B Holders will bear directly the
credit and other risks associated with their interest
in Trust I. To the extent the Class B Investor
Interest is reduced, the percentage of collections of
Finance Charge Receivables allocable to the Class B
Holders in subsequent Monthly Periods will be reduced.
Such reductions of the Class B
S-11
Investor Interest will thereafter be reimbursed and
the Class B Investor Interest increased on each
Transfer Date by the amount, if any, of Excess Spread
for such Transfer Date available for that purpose. To
the extent the amount of such reduction in the Class B
Investor Interest is not reimbursed, the amount of
principal and interest distributable to the Class B
Holders will be reduced. See "Description of the
Certificates -- Subordination."
ADDITIONAL AMOUNTS AVAILABLE TO
HOLDERS.......................... With respect to any Transfer Date, Excess Spread will be
applied to fund the Class A Required Amount and the
Class B Required Amount, if any. The "Class A Required
Amount" means the amount, if any, by which the sum of
(a) the Class A Monthly Interest due on the related
Distribution Date and any overdue Class A Monthly
Interest and Class A Additional Interest thereon, (b)
the Class A Servicing Fee for the related Monthly
Period and any overdue Class A Servicing Fee and (c)
the Class A Investor Default Amount, if any, for the
related Monthly Period exceeds the Class A Available
Funds for the related Monthly Period. The "Class B
Required Amount" means the amount, if any, equal to
the sum of (a) the amount, if any, by which the sum of
(i) Class B Monthly Interest due on the related
Distribution Date and any overdue Class B Monthly
Interest and Class B Additional Interest thereon and
(ii) the Class B Servicing Fee for the related Monthly
Period and any overdue Class B Servicing Fee exceeds
the Class B Available Funds for the related Monthly
Period and (b) the Class B Investor Default Amount, if
any, for the related Monthly Period. The "Required
Amount" for any Monthly Period means the sum of the
Class A Required Amount and the Class B Required
Amount for such Monthly Period. "Excess Spread" for
any Transfer Date will equal the sum of (1) the excess
of (A) Class A Available Funds for the related Monthly
Period over (B) the sum of the amounts referred to in
clauses (a), (b) and (c) in the definition of "Class A
Required Amount" above, (2) the excess of (A) Class B
Available Funds for the related Monthly Period over
(B) the sum of the amounts referred to in clauses
(a)(i) and (a)(ii) in the definition of "Class B
Required Amount" above, (3) Collateral Available Funds
for the related Monthly Period not used under certain
circumstances to pay the Collateral Interest Servicing
Fee, as described herein and (4) Excess Finance Charge
Collections allocated to the Investor Interest.
If, on any Transfer Date, Excess Spread is less than the
Class A Required Amount, then Reallocated Principal
Collections allocable first to the Collateral Interest
and then to the Class B Investor Interest with respect
to the related Monthly Period will be used to fund the
remaining Class A Required Amount. If Reallocated
Principal Collections with respect to such Monthly
Period are insufficient to fund the remaining Class A
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Required Amount for the related Transfer Date, then
the Collateral Interest (after giving effect to
reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer
Date) will be reduced by the amount of such deficiency
(but not by more than the Class A Investor Default
Amount for such Monthly Period). In the event that
such reduction would cause the Collateral Interest to
be a negative number, the Collateral Interest will be
reduced to zero, and the Class B Investor Interest
(after giving effect to reductions for any Class B
Investor Charge-Offs and any Reallocated Class B
Principal Collections on such Transfer Date) will be
reduced by the amount by which the Collateral Interest
would have been reduced below zero (but not by more
than the excess of the Class A Investor Default
Amount, if any, for such Monthly Period over the
amount of such reduction, if any, of the Collateral
Interest with respect to such Monthly Period). In the
event that such reduction would cause the Class B
Investor Interest to be a negative number, the Class B
Investor Interest will be reduced to zero and the
Class A Investor Interest will be reduced by the
amount by which the Class B Investor Interest would
have been reduced below zero (but not by more than the
excess, if any, of the Class A Investor Default Amount
for such Monthly Period over such reductions in the
Collateral Interest and the Class B Investor Interest
with respect to such Monthly Period) (such reduction,
a "Class A Investor Charge-Off"). If the Collateral
Interest and the Class B Investor Interest are reduced
to zero, the Class A Holders will bear directly the
credit and other risks associated with their undivided
interest in Trust I. See "Description of the
Certificates -- Reallocation of Cash Flows" and "--
Defaulted Receivables; Investor Charge-Offs."
If, on any Transfer Date, Excess Spread not required to
pay the Class A Required Amount and to reimburse Class
A Investor Charge-Offs is less than the Class B
Required Amount, then Reallocated Principal
Collections allocable to the Collateral Interest for
the related Monthly Period not required to pay the
Class A Required Amount will be allocated to fund the
remaining Class B Required Amount. If such remaining
Reallocated Principal Collections allocable to the
Collateral Interest with respect to such Monthly
Period are insufficient to fund the remaining Class B
Required Amount for the related Transfer Date, then
the Collateral Interest (after giving effect to
reductions for any Collateral Charge-Offs, Reallocated
Principal Collections and any adjustments made thereto
for the benefit of the Class A Holders) will be
reduced by the amount of such deficiency (but not by
more than the Class B Investor Default Amount for such
Monthly Period). If such reduction would cause the
Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero, and the
Class B Investor Interest will be reduced by the
amount by which the Collateral Interest would have
been reduced below zero (but not by more than the
excess, if any, of the Class B Investor
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Default Amount for such Monthly Period over such
reduction in the Collateral Interest with respect to
such Monthly Period) (such reduction, a "Class B
Investor Charge-Off"). In the event of a reduction of
the Class A Investor Interest, the Class B Investor
Interest or the Collateral Interest, the amount of
principal and interest available to fund payments with
respect to the Class A Certificates and the Class B
Certificates will be decreased. See "Description of
the Certificates -- Reallocation of Cash Flows" and
"-- Defaulted Receivables; Investor Charge-Offs."
REQUIRED COLLATERAL INTEREST...... The "Required Collateral Interest" with respect to any
Transfer Date means (a) initially, $32,500,000 (the
"Initial Collateral Interest") and (b) on any Transfer
Date thereafter, an amount equal to 6.5% of the sum of
the Class A Adjusted Investor Interest and the Class B
Investor Interest on such Transfer Date, after taking
into account deposits into the Principal Funding
Account on such Transfer Date and payments to be made
on the related Distribution Date, and the Collateral
Interest on the prior Transfer Date after any
adjustments made on such Transfer Date, but not less
than $15,000,000; provided, however, (i) that if
certain reductions in the Collateral Interest occur or
if a Pay Out Event occurs, the Required Collateral
Interest for such Transfer Date shall equal the
Required Collateral Interest for the Transfer Date
immediately preceding the occurrence of such reduction
or Pay Out Event; (ii) in no event shall the Required
Collateral Interest exceed the unpaid principal amount
of the Certificates as of the last day of the Monthly
Period preceding such Transfer Date after taking into
account payments to be made on the related
Distribution Date; and (iii) the Required Collateral
Interest may be reduced at any time to a lesser amount
if the Rating Agency Condition is satisfied. See
"Description of the Certificates -- Required Col-
lateral Interest."
If on any Transfer Date, the Collateral Interest is less
than the Required Collateral Interest, certain Excess
Spread amounts, if available, will be used to increase
the Collateral Interest to the extent of such
shortfall. If on any Transfer Date the Collateral
Interest equals or exceeds the Required Collateral
Interest, any such Excess Spread amounts will first be
deposited into the Reserve Account as described herein
and second, to the extent available, be applied in
accordance with the Loan Agreement among the Trustee,
the Transferor, the Servicer and the Collateral
Interest Holder (the "Loan Agreement") and will not be
available to the Holders.
SHARED EXCESS FINANCE CHARGE
COLLECTIONS...................... To the extent that collections of Finance Charge
Receivables allocated to the Investor Interest (and
certain other amounts that are to be treated as
collections of Finance Charge Receivables allocated to
the Investor Interest) are not needed to make payments
in respect of the Investor Interest as described
herein under "Description of the Certificates --
Application of Collections," such Excess Finance
Charge Collections will be
S-14
applied to make payments with respect to other Series
in Group One entitled to share therein in accordance
with the Agreement. In addition, Excess Finance Charge
Collections otherwise allocable to certain other
Series, to the extent not required to make payments in
respect of such Series, may be applied to cover
shortfalls in amounts payable from Excess Spread as
described herein under "Description of the Certifi-
cates -- Application of Collections." See "Prospectus
Summary -- Shared Excess Finance Charge Collections"
in the Prospectus for a general discussion of the
purpose and effect on Certificateholders of this
feature.
PAIRED SERIES..................... Series 1996-A may be paired with one or more other
Series (each a "Paired Series"). If a Paired Series is
issued with respect to Series 1996-A, following the
issuance of such Paired Series, as the Adjusted
Invested Amount is reduced, the investor interest of
the Paired Series may increase by an equal amount.
This will have the effect of increasing the investor
interest of the Paired Series by an amount that
otherwise would have increased the Transferor
Interest. If a Pay Out Event occurs with respect to
any such Paired Series prior to the payment in full of
the Certificates, the percentages used to determine
the share of collections of Principal Receivables
allocable to the Certificates may be reduced, which
may delay the final payment of principal to the
Holders. See "Maturity Assumptions -- Paired Series,"
"Description of the Certificates -- Paired Series" and
"Description of the Certificates -- Allocation
Percentages" herein.
SHARED PRINCIPAL COLLECTIONS...... To the extent that collections of Principal Receivables
allocated to the Investor Interest are not needed to
make payments on the Investor Interest or to be
deposited in the Principal Funding Account, such
collections ("Shared Principal Collections") will be
allocated to cover certain principal payments due to
or for the benefit of certificateholders of other
Series in Group One or, under certain circumstances,
paid to the Transferor or deposited into the Excess
Funding Account. Any such reallocation or deposit will
not result in a reduction in the Investor Interest
with respect to Series 1996-A. In addition,
collections of Principal Receivables and certain other
amounts otherwise allocable to other Series in Group
One, to the extent such collections are not needed to
make payments to or deposits for the benefit of the
certificateholders of such other Series, may be
applied to cover principal payments due to or for the
benefit of the holders of the Class A Certificates and
the Class B Certificates or the Collateral Interest
Holder. See "Description of the Certificates -- Shared
Principal Collections." Also see "Prospectus Summary
-- Shared Principal Collections" in the Prospectus for
a general discussion of the purpose and effect on
Certificateholders of this feature.
OPTIONAL REPURCHASE............... The Investor Interest will be subject to optional
repurchase by the Transferor on any Distribution Date on
or after the Distribution Date on which the Investor
Interest is reduced to an amount less than or equal to
$25,000,000 (5% of the initial
S-15
Investor Interest), if certain conditions set forth in
the Agreement are met. The repurchase price will be
equal to the sum of the Investor Interest and all
accrued and unpaid interest on the Certificates and
the Collateral Interest through the day preceding the
Distribution Date on which the repurchase occurs. See
"Description of the Certificates -- Final Payment of
Principal; Termination" in the Prospectus.
DEFEASANCE........................ The Transferor may, at its option and subject to the
conditions specified in "Description of the Certificates
-- Defeasance," be discharged from its substantive
obligations in respect of the Certificates or in
respect of all Series issued by Trust I by irrevocably
depositing with the Trustee, under the terms of an
irrevocable trust agreement, as trust funds in trust,
any of (i) dollars in an amount, (ii) Permitted
Investments, or (iii) a combination of the two, in
each case sufficient to pay and discharge, and which
will be applied by the Trustee to pay and discharge,
all remaining scheduled interest and principal pay-
ments on all outstanding Certificates or on all
outstanding certificates of all Series issued by Trust
I, as the case may be, on the dates scheduled for such
payments and all amounts owing to the Collateral
Interest Holder, and if applicable, all other Credit
Enhancement Providers with respect to Trust I. See
"Description of the Certificates -- Defeasance."
TRUSTEE........................... The Bank of New York, a New York banking corporation and
its successors and any corporation resulting from or
surviving any consolidation or merger to which it or
its successors may be a party and any successor
trustee appointed pursuant to the Agreement.
TAX STATUS........................ Special Tax Counsel to the Transferor will opine on the
Closing Date that under existing law the Certificates
will be characterized as debt for Federal income tax
purposes and Trust I will not be an association or
publicly traded partnership taxable as a corporation.
Under the Agreement, the Transferor, the Servicer, the
Holders and the Certificate Owners will agree to treat
the Certificates as debt for Federal, state, local and
foreign income and franchise tax purposes. See "U.S.
Federal Income Tax Consequences" in the Prospectus for
additional information concerning the application of
Federal income tax laws.
ERISA CONSIDERATIONS.............. Subject to considerations described below, the Class A
Certificates may be eligible for purchase by employee
benefit plan investors. Under a regulation issued by
the Department of Labor, Trust I's assets would not be
deemed "plan assets" of an employee benefit plan
holding the Class A Certificates if certain conditions
are met, including that the Class A Certificates must
be held, upon completion of the public offering made
hereby, by at least 100 investors who are independent
of the Transferor and of one another. Based on
information provided by any underwriter, agent or
dealer involved in the distribution of the Class A
Certificates offered hereby, the Transferor will
notify the Trustee as to whether or not the Class A
Certificates
S-16
will be expected to be held by at least 100 separately
named persons at the conclusion of the offering. The
Transferor anticipates that the other conditions of
the regulation will be met. If Trust I's assets were
deemed to be "plan assets" of an employee benefit plan
investor (e.g., if the 100 independent investor
criterion is not satisfied), violations of the
"prohibited transaction" rules of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), could result and generate excise tax and
other liabilities under ERISA and section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code"), unless a statutory, regulatory or
administrative exemption is available. It is uncertain
whether existing exemptions from the "prohibited
transaction" rules of ERISA would apply to all
transactions involving Trust I's assets. Accordingly,
fiduciaries or other persons contemplating purchasing
the Certificates on behalf or with "plan assets" of
any employee benefit plan should consult their counsel
before making a purchase. See "ERISA Considerations"
in the Prospectus.
CLASS A CERTIFICATE RATING........ It is a condition to the issuance of the Class A
Certificates that they be rated in the highest rating
category by at least one Rating Agency. The rating of
the Class A Certificates is based primarily on the
value of the Receivables and the terms of the Class B
Certificates and the Collateral Interest.
CLASS B CERTIFICATE RATING........ It is a condition to the issuance of the Class B
Certificates that they be rated in one of the three
highest rating categories by at least one Rating
Agency. The rating of the Class B Certificates is
based primarily on the value of the Receivables and
the terms of the Collateral Interest.
S-17
FIRST OMNI'S CREDIT CARD PORTFOLIO
GENERAL
The Receivables to be conveyed to Trust I by First Omni pursuant to the
Agreement have been or will be generated from transactions made by holders of
selected MasterCard and VISA credit card accounts, including premium accounts
and standard accounts, from the Identified Portfolio. A description of the
Bank's credit card business is contained in the Prospectus under the heading
"First Omni's Credit Card Activities." As of December 31, 1995, First Omni
managed a portfolio of bank card receivables totalling approximately $814
million.
BILLING AND PAYMENTS
First Omni generates and mails to cardholders monthly statements summarizing
account activity and processes cardholder monthly payments. Customers receive a
25-day grace period on purchases. Currently, cardholders in the programs
included in the Identified Portfolio must make a monthly minimum payment at
least equal to the greater of (i) 2% of the statement balance (excluding any
disputed amounts) plus past due amounts and (ii) a stated minimum payment
(generally $20) plus past due amounts.
The finance charges on purchases are assessed monthly and are calculated by
multiplying the account's average daily purchase balance TIMES the applicable
annual periodic rate TIMES the actual number of days in the applicable billing
cycle DIVIDED BY 365. Finance charges are calculated on purchases from the date
of the purchase or the first day of the billing cycle in which the purchase is
posted to the account, whichever is later. Monthly periodic finance charges are
not assessed on purchases if all balances shown in the billing statement are
paid by the due date, which is 25 days after the billing date. Finance charges
are calculated on cash advances (including balance transfers) from the date of
the transaction. Currently, First Omni generally treats the date of the cash
advance check as the transaction date for the check.
The Identified Portfolio consists primarily of variable rate credit card
accounts and also includes an insignificant amount of fixed rate credit card
accounts. Generally, variable rates range from prime plus 6.7% per annum to
prime plus 8.7% per annum. Some variable rate credit card accounts have
introductory rates which are lower for a brief period (typically six months).
First Omni generally imposes a minimum finance charge of $.50 when the account
incurs a finance charge of $.01 to $.49. Certain accounts in the Bank Portfolio
(which currently are not included in the Identified Portfolio) may also include
a reward structure that obligates First Omni to make incentive payments. Trust I
will not assume the obligation to make any such incentive payment, and First
Omni will be required to compensate Trust I for any reduction in collections
arising from any failure by First Omni to make a required incentive payment.
First Omni generally does not assess annual membership fees on accounts. A
limited number of accounts require payment of annual fees (generally ranging
from $18 to $38), although under various marketing programs these fees may be
waived or rebated. For most credit card accounts, First Omni also assesses late
and over limit charges (generally $15 in either case). First Omni generally
assesses a cash advance fee, typically 2% of the cash advance amount with a
$2.00 minimum and a $10.00 maximum. In addition, for certain accounts First Omni
assesses a "closed account fee" when the credit card account falls below a
specified balance for a specified time.
DELINQUENCY AND LOSS EXPERIENCE
An account is contractually delinquent if the minimum payment is not
received by the due date indicated on the customer's statement. When an account
becomes 30 days delinquent, the account may be restricted for subsequent
activity until the customer makes all past due payments. Once a customer is 60
days delinquent, the account is permanently closed. First Omni may agree with
cardholders to extend or otherwise change payment schedules on delinquent
accounts. Such agreement may include a short-term reduction of monthly minimum
payments and a conditional re-classification of the delinquent account as a
current account (subject to reversal in the event that the customer fails to
meet the reduced payment schedule). In limited cases, First Omni may also permit
a long-term reduction of monthly minimum payments and a suspension of finance
charge accruals.
Efforts to collect contractually delinquent credit card receivables include
statement messages, telephone calls and formal collection letters. First Omni
updates monthly an internal "behavior score" for each
S-18
cardholder based upon payment and transaction history. Each cardholder's credit
bureau score, under a credit scoring model developed with Fair, Isaac and
Company, Inc., is also updated quarterly. The behavior score and the credit
bureau score are used to prioritize accounts for initial contact with the
objective of contacting the highest risk and balance accounts first.
Accounts are worked continually at each stage of delinquency. Accounts are
charged off at 179 days delinquent and are then placed with collection personnel
at First Omni, outside collection agencies or outside attorneys. An automated
outsourcing system is used to assign these accounts to the appropriate
collection agent. Accounts of cardholders in bankruptcy are charged off at the
first bill date following official notification of the bankruptcy. Accounts of
cardholders may also be charged off prior to the normal charge-off date upon the
occurrence of certain events, such as the death or incarceration of the
cardholder.
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Identified Portfolio of credit card accounts. The
Identified Portfolio's delinquency and loss experience is comprised of segments
which may, when taken individually, have delinquency and loss characteristics
different from those of the overall Identified Portfolio of credit card
accounts. As of the end of the day on February 29, 1996, the Receivables in the
Trust I Portfolio represented approximately 95% of the Identified Portfolio.
Because the Trust I Portfolio is only a portion of the Identified Portfolio,
actual delinquency and loss experience with respect to the Receivables may be
different from that set forth below for the Identified Portfolio. There can be
no assurance that the delinquency and loss experience for the Receivables in the
future will be similar to the historical experience of the Identified Portfolio
set forth below.
DELINQUENCY EXPERIENCE
IDENTIFIED PORTFOLIO
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1995 1994 1993
-------------------------- -------------------------- --------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL OF TOTAL
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
----------- ------------- ----------- ------------- ----------- -------------
Receivables Outstanding (1)................ $ 731,008 100.00% $ 654,516 100.00% $ 685,763 100.00%
Receivables Delinquent:
30 - 59 Days............................. 13,139 1.80% 12,667 1.93% 13,623 1.98%
60 - 89 Days............................. 7,618 1.04% 7,337 1.12% 6,971 1.02%
90 or More Days.......................... 14,673 2.01% 11,622 1.78% 11,853 1.73%
Total.................................. 35,430 4.85% 31,626 4.83% 32,447 4.73%
- ------------------------
(1) The Receivables Outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts as of the end of the period shown.
LOSS EXPERIENCE
IDENTIFIED PORTFOLIO
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
Average Receivables Outstanding (1)................................... $ 690,790 $ 641,694 $ 649,402
Net Charge-Offs (2)................................................... 30,099 30,220 30,237
Net Charge-Offs as a percentage of
Average Receivables Outstanding...................................... 4.36% 4.71% 4.66%
- ------------------------
(1) Average Receivables Outstanding is the average of the receivables balances
at the end of each month in the period indicated.
(2) Net Charge-Offs are total principal, interest and fee charge-offs net of
recoveries and do not include the amount of any reduction in Average
Receivables Outstanding due to fraud, returned goods, customer disputes or
other miscellaneous credit adjustments.
S-19
INTERCHANGE
The Transferor will be required, pursuant to the terms of the Agreement, to
transfer to Trust I a percentage of the Interchange attributed to cardholder
charges for goods and services in the Accounts. Interchange arising under the
Accounts will be allocated to the Certificates on the basis of the percentage
equivalent of the ratio of (i) the Floating Investor Percentage of cardholder
charges for goods and services in the Accounts to (ii) the total amount of
cardholder charges for goods and services in the MasterCard and VISA credit card
accounts owned by First Omni, as reasonably estimated by the Transferor.
MasterCard and VISA may from time to time change the amount of Interchange
reimbursed to banks issuing their credit cards. Interchange will be treated as
collections of Finance Charge Receivables for the purposes of determining the
amount of Finance Charge Receivables, allocating collections of Finance Charge
Receivables, making required monthly payments, and calculating the Portfolio
Yield. Under the circumstances described herein, Interchange will be used to pay
a portion of the Monthly Investor Servicing Fee required to be paid on each
Transfer Date. See "Description of the Certificates -- Servicing Compensation
and Payment of Expenses" herein and "First Omni's Credit Card Activities --
Interchange" in the Prospectus.
THE RECEIVABLES
The Receivables conveyed to Trust I arise in Accounts in the Identified
Portfolio (or, in the case of Supplemental Accounts, the Bank Portfolio) that
satisfy the eligibility criteria set forth in the Agreement as applied on the
Cut-Off Date and, with respect to Additional Accounts, as of the related date of
their designation (the "Trust I Portfolio"). The Trust I Portfolio includes all
accounts in the Identified Portfolio that satisfy such eligibility criteria
other than accounts arising from certain agent and affinity programs. However,
such accounts may subsequently be added to the Trust I Portfolio as Additional
Accounts. Pursuant to the Agreement, the Transferor has the right, subject to
certain limitations and conditions set forth therein, to designate from time to
time Additional Accounts and to transfer to Trust I all Receivables of such
Additional Accounts, whether such Receivables are then existing or thereafter
created. The Transferor's designation of Additional Accounts generally will be
subject to the satisfaction of certain conditions (including the Rating Agency
Condition). However, the Transferor may from time to time designate to Trust I
accounts ("Automatic Additional Accounts") generated in the ordinary course of
business of the Transferor as part of the Identified Portfolio without
satisfying the Rating Agency Condition, subject to limitations set forth in the
Agreement on the amount of Automatic Additional Accounts that may be designated
for Trust I during a period of time. Any Additional Accounts (including
Automatic Additional Accounts) designated pursuant to the Agreement must be
Eligible Accounts as of the date the Transferor designates such accounts as
Additional Accounts. In addition, Transferor will be required to designate
certain other accounts ("Supplemental Accounts") to the extent available, (a) to
maintain the Transferor Interest (including the principal amount on deposit in
the Excess Funding Account) so that during any period of 30 consecutive days,
the Transferor Interest averaged over that period equals or exceeds the Minimum
Transferor Interest for the same period and (b) to maintain, for so long as
certificates of any Series (including the Certificates) remain outstanding, the
sum of (i) the aggregate amount of Principal Receivables and (ii) the principal
amount on deposit in the Excess Funding Account equal to or greater than the
Minimum Aggregate Principal Receivables. "Minimum Transferor Interest" means 7%
of the sum of (i) the aggregate Principal Receivables and (ii) the aggregate
principal amount on deposit in the Excess Funding Account at the end of the day
immediately prior to the date of determination; provided, however, that the
Transferor may increase or reduce the percentage used to calculate the Minimum
Transferor Interest (but not to below 2%), in each case upon satisfaction of the
Rating Agency Condition and certain other conditions to be set forth in the
Agreement. "Minimum Aggregate Principal Receivables" means an amount equal to
the sum of the numerators used to calculate the Investor Percentages with
respect to the allocation of collections of Principal Receivables for each
Series issued by Trust I then outstanding; provided, that the Minimum Aggregate
Principal Receivables may be increased or reduced at any time if the Rating
Agency Condition is satisfied. The Transferor will convey the Receivables then
existing or thereafter created under such Additional Accounts to Trust I.
Further, pursuant to the Agreement, the Transferor will have the right to
designate certain Removed Accounts and to require the Trustee to reconvey all
Receivables in such Removed Accounts to the Transferor, whether such Receivables
are then existing or thereafter created. The
S-20
Transferor's right to designate and require reassignment to it of the
Receivables from Removed Accounts is subject to the limitations and conditions
described under "The Certificates -- Removal of Accounts" in the Prospectus.
Further, the Principal Receivables of the Removed Accounts may not equal or
exceed 5% of the aggregate amount of the Principal Receivables in Trust I at
such time, except that, if any Series has been paid in full, the Principal
Receivables in such Removed Accounts may equal or approximately equal the
initial Investor Interest of such Series. Throughout the term of Trust I, the
Accounts from which the Receivables arise will be the Accounts designated by the
Transferor on the Cut-Off Date plus any Additional Accounts minus any Removed
Accounts. As of the Cut-Off Date and, with respect to Receivables in Additional
Accounts, as of the related date of their conveyance to Trust I, and on the date
any new Receivables are created, the Transferor will represent and warrant to
Trust I that the Receivables meet the eligibility requirements specified in the
Agreement. See "Description of the Certificates -- Representations and
Warranties" in the Prospectus.
The Receivables in the Trust I Portfolio, as of the beginning of the day on
the Cut Off Date, included $637,964,421.84 of Principal Receivables and
$18,353,034.78 of Finance Charge Receivables. As of the beginning of the day on
the Cut Off Date, cardholders whose Accounts are included in the Trust I
Portfolio had billing addresses in all 50 States and the District of Columbia.
Because approximately 20% of the cardholders whose Accounts are included in the
Trust I Portfolio had a billing address in Maryland, the Trust I Portfolio as a
whole may be adversely affected by material adverse legal, economic and social
changes in Maryland. See "Risk Factors -- Effect of Social, Legal and Economic
Factors on Credit Card Usage" in the Prospectus.
The following tables summarize the Trust I Portfolio by various criteria as
of the end of the day on February 29, 1996. As noted above, eligible accounts in
the Identified Portfolio arising from certain agent and affinity programs are
not initially designated to the Trust I Portfolio. However, such accounts and
other accounts in the Bank Portfolio may from time to time be added to the Trust
I Portfolio as Additional Accounts in the manner described herein. As a result,
these tables are not necessarily indicative of the composition of the Trust I
Portfolio at any subsequent time. The following tables include Accounts in the
Trust I Portfolio that were inactive as of the end of the day on February 29,
1996.
COMPOSITION BY ACCOUNT BALANCE
TRUST I PORTFOLIO
PERCENTAGE OF PERCENTAGE OF
TOTAL TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNT BALANCE RANGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- ---------------------------------------------- ----------- ------------------ -------------- -----------------
Credit Balance - $0.00........................ 458,312 60.81% $ (899,292) (0.14)%
$.01 to $500.................................. 93,670 12.43% 15,949,387 2.39%
$500.01 to $1,000............................. 35,191 4.67% 25,992,723 3.89%
$1,000.01 to $3,000........................... 78,052 10.35% 148,753,072 22.26%
$3,000.01 to $5,000........................... 45,120 5.99% 178,952,973 26.78%
$5,000.01 to $10,000.......................... 42,134 5.59% 285,676,233 42.75%
$10,000 or more............................... 1,210 0.16% 13,810,135 2.07%
----------- ------ -------------- -------
Total................................... 753,689 100.00% $ 668,235,231 100.00%
----------- ------ -------------- -------
----------- ------ -------------- -------
S-21
COMPOSITION BY CREDIT LIMIT
TRUST I PORTFOLIO
PERCENTAGE OF
PERCENTAGE OF TOTAL
NUMBER OF TOTAL RECEIVABLES RECEIVABLES
CREDIT LIMIT RANGE ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- ---------------------------------------------- ----------- ------------------ -------------- ------------------
$0.01 - $499.................................. 3,225 0.43% $ 2,331,054 0.35%
$500 - $999................................... 6,793 0.90% 1,217,145 0.18%
$1,000 - $1,499............................... 18,200 2.41% 4,834,903 0.72%
$1,500 - $2,999............................... 80,762 10.72% 38,948,870 5.83%
$3,000 - $4,999............................... 176,096 23.36% 103,856,194 15.54%
$5,000 - $9,999............................... 378,132 50.17% 407,426,741 60.97%
$10,000 - $14,999............................. 89,123 11.83% 105,575,219 15.80%
$15,000 - $24,999............................. 1,093 0.15% 3,135,193 0.47%
$25,000 - $49,999............................. 241 0.03% 808,712 0.12%
$50,000+...................................... 24 0.00% 101,200 0.02%
----------- ------ -------------- ------
Total................................... 753,689 100.00% $ 668,235,231 100.00%
----------- ------ -------------- ------
----------- ------ -------------- ------
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST I PORTFOLIO
PERCENTAGE OF
PERCENTAGE OF TOTAL
PERIOD OF DELINQUENCY NUMBER OF TOTAL RECEIVABLES RECEIVABLES
(DAYS CONTRACTUALLY DELINQUENT) ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- ---------------------------------------------- ----------- ------------------ -------------- ------------------
Current....................................... 743,749 98.68% $ 634,428,312 94.94%
30 Days....................................... 3,794 0.50% 11,779,109 1.76%
60 Days....................................... 2,351 0.31% 7,390,726 1.11%
90 Days....................................... 1,548 0.21% 5,706,271 0.85%
120 Days...................................... 1,302 0.17% 5,076,930 0.76%
150 Days...................................... 945 0.13% 3,853,883 0.58%
180+ Days..................................... 0 0.00% 0 0.00%
----------- ------ -------------- ------
Total................................... 753,689 100.00% $ 668,235,231 100.00%
----------- ------ -------------- ------
----------- ------ -------------- ------
COMPOSITION BY ACCOUNT AGE
TRUST I PORTFOLIO
PERCENTAGE OF
PERCENTAGE OF TOTAL
NUMBER OF TOTAL RECEIVABLES RECEIVABLES
AGE RANGE ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- ---------------------------------------------- ----------- ------------------ -------------- ------------------
Not more than 6 months........................ 4,412 0.59% $ 3,147,827 0.47%
Over 6 months to 12 months.................... 75,658 10.04% 61,202,667 9.16%
Over 12 months to 24 months................... 169,250 22.45% 73,895,819 11.06%
Over 24 months to 36 months................... 49,481 6.56% 73,928,576 11.06%
Over 36 months to 48 months................... 10,389 1.38% 10,949,091 1.64%
Over 48 months................................ 444,499 58.98% 445,111,251 66.61%
----------- ------ -------------- ------
Total................................... 753,689 100.00% $ 668,235,231 100.00%
----------- ------ -------------- ------
----------- ------ -------------- ------
S-22
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST I PORTFOLIO
PERCENTAGE OF
PERCENTAGE OF TOTAL
NUMBER OF TOTAL RECEIVABLES RECEIVABLES
STATE ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- ---------------------------------------------- ----------- ------------------ -------------- ------------------
Alabama....................................... 4,588 0.61% $ 4,174,578 0.62%
Alaska........................................ 604 0.08% 886,041 0.13%
Arkansas...................................... 809 0.11% 984,339 0.15%
Arizona....................................... 5,359 0.71% 6,002,013 0.90%
California.................................... 46,014 6.11% 50,682,201 7.58%
Colorado...................................... 6,486 0.86% 6,315,326 0.95%
Connecticut................................... 17,955 2.38% 18,941,331 2.83%
Delaware...................................... 7,834 1.04% 5,218,064 0.78%
District of Columbia.......................... 5,970 0.79% 6,231,568 0.93%
Florida....................................... 31,469 4.18% 30,273,670 4.53%
Georgia....................................... 10,588 1.40% 10,929,970 1.64%
Hawaii........................................ 1,911 0.25% 2,918,245 0.44%
Idaho......................................... 3,444 0.46% 3,077,033 0.46%
Illinois...................................... 27,089 3.59% 25,759,539 3.85%
Indiana....................................... 2,821 0.37% 2,508,952 0.38%
Iowa.......................................... 2,160 0.29% 1,458,462 0.22%
Kansas........................................ 3,796 0.50% 3,354,886 0.50%
Kentucky...................................... 8,079 1.07% 6,825,780 1.02%
Louisiana..................................... 2,374 0.31% 2,194,836 0.33%
Maine......................................... 657 0.09% 775,900 0.12%
Maryland...................................... 144,596 19.19% 132,295,624 19.80%
Massachusetts................................. 10,543 1.40% 11,510,371 1.72%
Michigan...................................... 17,660 2.34% 18,564,820 2.78%
Minnesota..................................... 3,926 0.52% 2,272,762 0.34%
Mississippi................................... 2,765 0.37% 2,690,950 0.40%
Missouri...................................... 9,217 1.22% 7,586,632 1.14%
Montana....................................... 1,490 0.20% 1,354,399 0.20%
Nebraska...................................... 1,226 0.16% 830,159 0.12%
Nevada........................................ 4,002 0.53% 5,405,053 0.81%
New Hampshire................................. 3,794 0.50% 3,159,355 0.47%
New Jersey.................................... 32,488 4.31% 32,773,277 4.90%
New Mexico.................................... 4,292 0.57% 4,005,973 0.60%
New York...................................... 35,681 4.73% 37,652,765 5.63%
North Carolina................................ 8,609 1.14% 7,082,319 1.06%
North Dakota.................................. 1,125 0.15% 651,951 0.10%
Ohio.......................................... 30,066 3.99% 23,103,755 3.46%
Oklahoma...................................... 3,075 0.41% 2,933,812 0.44%
Oregon........................................ 39,202 5.20% 32,875,347 4.92%
Pennsylvania.................................. 93,037 12.34% 53,764,767 8.05%
Puerto Rico................................... 147 0.02% 247,894 0.04%
Rhode Island.................................. 1,754 0.23% 1,786,453 0.27%
South Carolina................................ 2,175 0.29% 2,701,422 0.40%
South Dakota.................................. 987 0.13% 641,396 0.10%
Tennessee..................................... 4,713 0.63% 3,822,506 0.57%
Texas......................................... 11,449 1.52% 14,289,276 2.14%
Utah.......................................... 3,168 0.42% 2,704,698 0.40%
Vermont....................................... 1,480 0.20% 1,070,219 0.16%
S-23
PERCENTAGE OF
PERCENTAGE OF TOTAL
NUMBER OF TOTAL RECEIVABLES RECEIVABLES
STATE ACCOUNTS NUMBER OF ACCOUNTS OUTSTANDING OUTSTANDING
- ---------------------------------------------- ----------- ------------------ -------------- ------------------
Virginia...................................... 38,181 5.07% $ 27,877,404 4.17%
Washington.................................... 31,707 4.21% 26,999,912 4.04%
West Virginia................................. 6,403 0.85% 4,552,465 0.68%
Wisconsin..................................... 2,416 0.32% 2,876,065 0.43%
Wyoming....................................... 937 0.13% 996,012 0.15%
Other (1)..................................... 11,371 1.51% 7,642,684 1.15%
----------- ------ -------------- ------
Total................................... 753,689 100.00% $ 668,235,231 100.00%
----------- ------ -------------- ------
----------- ------ -------------- ------
- ------------------------
(1) Accounts coded as "Others" are accounts in foreign countries, Guam, the
Virgin Islands and accounts of U.S. military personnel outside the United
States.
MATURITY ASSUMPTIONS
The Agreement provides that Class A Holders will not receive payments of
principal until the Class A Scheduled Payment Date, or earlier in the event of a
Pay Out Event which results in the commencement of the Rapid Amortization
Period. The Class B Holders will not begin to receive payments of principal
until the final principal payment on the Class A Certificates has been made.
CONTROLLED ACCUMULATION PERIOD. On each Transfer Date during the Controlled
Accumulation Period prior to the payment of the Class A Investor Interest in
full, an amount equal to, for each Monthly Period, the least of (a) the
Available Investor Principal Collections, (b) the "Controlled Deposit Amount"
for such Monthly Period (which equals the sum of the Controlled Accumulation
Amount for such Monthly Period and any portion of the Controlled Accumulation
Amount for any prior Monthly Period that was not deposited in the Principal
Funding Account) and (c) the Class A Adjusted Investor Interest prior to any
deposits on such day, will be deposited in the Principal Funding Account (the
"Principal Funding Account") established by the Servicer until the principal
amount on deposit in the Principal Funding Account (the "Principal Funding
Account Balance") equals the Class A Investor Interest. After the Class A
Investor Interest has been paid in full, Available Investor Principal
Collections, to the extent required, will be distributed to the Class B Holders
on each Distribution Date until the earlier of the date the Class B Investor
Interest has been paid in full and the Series 1996-A Termination Date. After the
Class A Investor Interest and the Class B Investor Interest have each been paid
in full, Available Investor Principal Collections, to the extent required, will
be distributed to the Collateral Interest Holder on each Transfer Date until the
earlier of the date the Collateral Interest has been paid in full and the Series
1996-A Termination Date. Amounts in the Principal Funding Account are expected
to be available to pay the Class A Investor Interest on the Class A Scheduled
Payment Date. After the payment of the Class A Investor Interest in full,
Available Investor Principal Collections are expected to be available to pay the
Class B Investor Interest on the Class B Scheduled Payment Date. Although it is
anticipated that collections of Principal Receivables will be available on each
Transfer Date during the Controlled Accumulation Period to make a deposit of the
applicable Controlled Deposit Amount and that the Class A Investor Interest will
be paid to the Class A Holders on the Class A Scheduled Payment Date and the
Class B Investor Interest will be paid to the Class B Holders on the Class B
Scheduled Payment Date, respectively, no assurance can be given in this regard.
If the amount required to pay the Class A Investor Interest or the Class B
Investor Interest in full is not available on the Class A Scheduled Payment Date
or the Class B Scheduled Payment Date, respectively, a Pay Out Event will occur
and the Rapid Amortization Period will commence.
RAPID AMORTIZATION PERIOD. If a Pay Out Event occurs, the Rapid
Amortization Period will commence and any amount on deposit in the Principal
Funding Account will be paid to the Class A Holders on the Distribution Date in
the month following the commencement of the Rapid Amortization Period. In
addition, to the extent that the Class A Investor Interest has not been paid in
full, the Class A Holders will be entitled to monthly payments of principal
equal to the Available Investor Principal Collections until the earlier of the
date on which the Class A Certificates have been paid in full and the Series
1996-A Termination
S-24
Date. After the Class A Certificates have been paid in full and if the Series
1996-A Termination Date has not occurred, Available Investor Principal
Collections will be paid to the Class B Certificates on each Distribution Date
until the earlier of the date on which the Class B Certificates have been paid
in full and the Series 1996-A Termination Date.
PAY OUT EVENTS. A Pay Out Event occurs, either automatically or after
specified notice, upon (a) the failure of the Transferor to make certain
payments or transfers of funds for the benefit of the Holders within the time
periods stated in the Agreement, (b) material breaches of certain
representations, warranties or covenants of the Transferor, (c) certain
insolvency events involving the Transferor, (d) a reduction in the average of
the Portfolio Yields for any three consecutive Monthly Periods to a rate that is
less than the average of the Base Rates for such period, (e) Trust I becoming an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, (f) the failure of the Transferor to convey Receivables arising
under Supplemental Accounts or Participations to Trust I when required by the
Agreement, (g) the occurrence of a Servicer Default which would have a material
adverse effect on the Holders, (h) insufficient monies in the Distribution
Account to pay the Class A Investor Interest or the Class B Investor Interest in
full on the Class A Scheduled Payment Date or the Class B Scheduled Payment
Date, respectively, or (i) the Transferor becomes unable for any reason to
transfer Receivables to Trust I in accordance with the provisions of the
Agreement. See "Description of the Certificates -- Pay Out Events." The term
"Base Rate" means, with respect to any Monthly Period, the annualized percentage
equivalent of a fraction, the numerator of which is the sum of the Class A
Monthly Interest, the Class B Monthly Interest and the Collateral Monthly
Interest, each for the related Interest Period, and the Monthly Investor
Servicing Fee for such Monthly Period, and the denominator of which is the
Investor Interest as of the close of business on the last day of such Monthly
Period. The term "Portfolio Yield" means, with respect to any Monthly Period,
the annualized percentage equivalent of a fraction, the numerator of which is
the sum of collections of Finance Charge Receivables, Principal Funding
Investment Proceeds and amounts withdrawn from the Reserve Account deposited
into the Finance Charge Account and allocable to the Certificates and the
Collateral Interest for such Monthly Period, calculated on a cash basis after
subtracting the Investor Default Amount for such Monthly Period, and the
denominator of which is the Investor Interest as of the close of business on the
last day of such Monthly Period.
PAIRED SERIES. The Transferor may cause Trust I to issue another Series in
Group I as a Paired Series with respect to Series 1996-A. Although no assurance
can be given as to whether such other Series will be issued and, if issued, the
specific terms thereof, the outstanding principal amount of such Series may vary
from time to time whether or not a Pay Out Event occurs with respect to Series
1996-A, and the interest rate with respect to certificates of such other Series
will be established on the date of issuance of such Series and may be reset
periodically. Further, the Pay Out Events with respect to such other Series may
vary from the Pay Out Events with respect to Series 1996-A and may include Pay
Out Events which are unrelated to the status of the Transferor, the Servicer or
the Receivables, such as events related to the continued availability and rating
of certain providers of Enhancement to such other Series. If a Pay Out Event
does occur with respect to any such Paired Series prior to the payment in full
of the Certificates, the final payment of principal to the Holders may be
delayed. In particular, the numerator of the Fixed Allocation Percentage may be
changed upon the occurrence of a Pay Out Event with respect to a Paired Series
resulting in a possible reduction of the percentage of collections of Principal
Receivables allocated to the Holders and a possible delay in payments to such
Holders. See "Description of the Certificates -- Allocation Percentages" and "--
Paired Series" herein.
PAYMENT RATES. The following table sets forth the highest and lowest
cardholder monthly payment rates for the Identified Portfolio during any month
in the period shown and the average cardholder monthly payment rates for all
months during the periods shown, in each case calculated as a percentage of
total opening monthly account balances during the periods shown. Payment rates
shown in the table are based on amounts which would be deemed payments of
Principal Receivables and Finance Charge Receivables with respect to the
Accounts.
S-25
CARDHOLDER MONTHLY PAYMENT RATES
IDENTIFIED PORTFOLIO
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
Lowest Month............................................................ 10.20% 11.47% 11.59%
Highest Month........................................................... 12.91% 14.10% 13.91%
Monthly Average......................................................... 11.47% 12.43% 12.68%
Currently, cardholders must make a monthly minimum payment equal to the
greater of (i) 2% of the statement balance plus past due amounts and (ii) a
stated minimum payment (generally $20) plus past due amounts. There can be no
assurance that the cardholder monthly payment rates in the future will be
similar to the historical experience set forth above. In addition, the amount of
collections of Receivables may vary from month to month due to seasonal
variations, general economic conditions and payment habits of individual
cardholders. There can be no assurance that collections of Principal Receivables
with respect to the Trust I Portfolio will be similar to the historical
experience set forth above or that deposits into the Principal Funding Account
or the Distribution Account, as applicable, will be made in accordance with the
applicable Controlled Accumulation Amount. If a Pay Out Event occurs, the
average life of the Certificates could be significantly reduced or increased.
Because there may be a slowdown in the payment rate below the payment rates
used to determine the Controlled Accumulation Amounts, or a Pay Out Event may
occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the date of issuance of
the Class A Certificates and the Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. As described under
"Description of the Certificates -- Postponement of Controlled Accumulation
Period," the Servicer may shorten the Controlled Accumulation Period and, in
such event, there can be no assurance that there will be sufficient time to
accumulate all amounts necessary to pay the Class A Investor Interest and the
Class B Investor Interest on the Class A Scheduled Payment Date and the Class B
Scheduled Payment Date, respectively. See "Maturity Assumptions" and "Risk
Factors -- Payments Other than at Expected Maturity" in the Prospectus.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in the
Identified Portfolio for each of the three calendar years contained in the
period ended December 31, 1995 are set forth in the following table.
The historical yield figures in the following table are calculated on an
accrual basis. Collections of Receivables included in Trust I will be on a cash
basis and may not reflect the historical yield experience in the table. 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. However, the
Transferor believes that during the three calendar years contained in the period
ended December 31, 1995, the yield on an accrual basis closely approximated the
yield on a cash basis. The yield on both an accrual and a cash basis will be
affected by numerous factors, including the monthly periodic finance charges on
the Receivables, the amount of any annual membership fees and other fees,
changes in the delinquency rate on the Receivables and the percentage of
cardholders who pay their balances in full each month and do not incur monthly
periodic finance charges. See "Risk Factors" in the Prospectus.
S-26
PORTFOLIO YIELD
IDENTIFIED PORTFOLIO
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
Average Receivables Outstanding (1)......................... $ 690,790 $ 641,694 $ 649,402
Total Finance Charges and Fees (2)(3)....................... 127,150 123,542 127,312
Total Finance Charges and Fees as a percentage of Average
Receivables Outstanding.................................... 18.41% 19.25% 19.60%
- ------------------------
(1) Average Receivables Outstanding is the average of the receivables balances
at the end of each month in the period indicated.
(2) Fees include Late Fees, Annual Fees, Interchange and Other Fees allocated to
the Identified Portfolio.
(3) Finance Charges and Fees are presented net of adjustments made pursuant to
First Omni's normal servicing precedents, including removal of incorrect or
disputed monthly periodic finance charges.
The revenue for the Identified Portfolio of credit card accounts shown in
the above table is comprised of monthly periodic finance charges, credit card
fees and Interchange. These revenues vary for each account based on the type and
volume of activity for each account. Because the Trust I Portfolio is only a
portion of the Identified Portfolio, actual yield with respect to Receivables
may be different from that set forth above for the Identified Portfolio. See
"First Omni's Credit Card Portfolio" herein and "First Omni Credit Card
Activities" in the Prospectus.
FIRST OMNI BANK, N.A. AND FIRST MARYLAND BANCORP
First Omni, a wholly owned subsidiary of First Maryland Bancorp (the
"Corporation"), is a national banking association located in Millsboro,
Delaware. It provides nationwide retail bank card services. The Corporation is a
multibank holding company registered under the Bank Holding Company Act and
maintains its headquarters in Baltimore, Maryland. As of December 31, 1995,
First Omni had assets of $671.1 million and shareholder's equity of $73.8
million. As of December 31, 1995, the Corporation had assets of $10.466 billion
and shareholders' equity of $1.184 billion. The Corporation is a subsidiary of
Allied Irish Banks, p.l.c. ("AIB"), an Irish banking corporation, which owns
100% of the common stock and 99% of the voting power of the Corporation. AIB is
the largest banking corporation organized under the laws of Ireland, based on
total assets at December 31, 1995. AIB is a registered bank holding company
under the Bank Holding Company Act.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement and the Series
1996-A Supplement. Pursuant to the Agreement, the Transferor and the Trustee may
execute further series supplements in order to issue additional Series. The
following summary of the Certificates does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Agreement and the Series 1996-A Supplement. See "Description
of the Certificates" in the Prospectus for additional information concerning the
Certificates and the Agreement.
GENERAL
The Certificates will represent the right to receive certain payments from
the assets of Trust I, including the right to the applicable allocation
percentage of all cardholder payments on the Receivables in Trust I. Each Class
A Certificate represents the right to receive payments of interest at the Class
A Rate for the related Interest Period and payments of principal on the Class A
Scheduled Payment Date or, to the extent of the Class A Investor Interest, on
each Distribution Date during the Rapid Amortization Period, funded from
collections of Finance Charge Receivables and Principal Receivables,
respectively, allocated to the Class A Investor Interest and certain other
available amounts. Each Class B Certificate represents the right
S-27
to receive payments of interest at the applicable Class B Rate for the related
Interest Period, and payments of principal on the Class B Scheduled Payment Date
or, to the extent of the Class B Investor Interest, on each Distribution Date
during the Rapid Amortization Period after the Class A Certificates have been
paid in full, funded from collections of Finance Charge Receivables and
Principal Receivables, respectively, allocated to the Class B Investor Interest
and certain other available amounts. In addition to representing the right to
payment from collections of Finance Charge Receivables and Principal
Receivables, each Class A Certificate also represents the right to receive
payments from Excess Spread, funds on deposit in the Principal Funding Account
and the Reserve Account and certain investment earnings thereon, Reallocated
Principal Collections and Shared Principal Collections and certain other
available amounts (including, under certain circumstances, amounts on deposit in
the Excess Funding Account). In addition to representing the right to payment
from collections of Finance Charge Receivables and Principal Receivables, each
Class B Certificate also represents the right to receive payments from Excess
Spread, Reallocated Collateral Principal Collections and Shared Principal
Collections and certain other available amounts (including, under certain
circumstances, amounts on deposit in the Excess Funding Account). Payments of
interest and principal will be made, to the extent of funds available therefor,
on each Distribution Date on which such amounts are due to Holders in whose
names the Certificates were registered on the last business day of the calendar
month preceding such Distribution Date (each, a "Record Date").
The Transferor initially will own the Transferor Certificate. The Transferor
Certificate will represent the right to receive certain payments from the assets
of Trust I, including the right to a percentage (the "Transferor Percentage") of
all cardholder payments on the Receivables in Trust I equal to 100% minus the
sum of the applicable Investor Percentages for all Series of certificates then
outstanding. The Transferor Certificate may be transferred in whole or in part
subject to certain limitations and conditions set forth in the Agreement. See
"Description of the Certificates -- Certain Matters Regarding the Transferor and
the Servicer" in the Prospectus.
The Class A Certificates initially will be represented by certificates
registered in the name of Cede, as nominee of DTC. Unless and until Definitive
Certificates are issued, all references herein to actions by Class A Holders
shall refer to actions taken by DTC upon instructions from DTC Participants and
all references herein to distributions, notices, reports and statements to Class
A Holders shall refer to distributions, notices, reports and statements to DTC
or Cede, as the registered holder of the Class A Certificates, as the case may
be, for distribution to Certificate Owners in accordance with DTC procedures.
Holders may hold their Certificates through DTC (in the United States) or Cedel
or Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations that are participants in such systems. Cede, as nominee
for DTC, will hold the global Certificates. Cedel and Euroclear will hold
omnibus positions on behalf of the Cedel Participants and the Euroclear
Participants, respectively, through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective Depositaries which in
turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. See "Description of the Certificates --
General," "-- Book-Entry Registration" and "-- Definitive Certificates" in the
Prospectus.
EXCHANGES
The Transferor Certificate is transferable only as provided in the
Agreement. The Agreement also provides that the holder of the Transferor
Certificate may tender the Transferor Certificate to the Trustee in exchange for
one or more new Series and a reissued Transferor Certificate as described under
"Description of the Certificates -- Exchanges" in the Prospectus.
INTEREST PAYMENTS
Interest will accrue on the Class A Certificates at the Class A Rate and on
the Class B Certificates at the Class B Rate from the Closing Date. Interest
will be distributed to Holders on June 17, 1996 and on each Distribution Date
thereafter. Interest payments on the Class A Certificates and the Class B
Certificates on any Distribution Date will be calculated on the outstanding
principal balance of the Class A Certificates and the outstanding principal
balance of the Class B Certificates, as applicable, as of the preceding Record
Date, except that interest for the first Distribution Date will accrue on the
initial outstanding principal balance of
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the Class A Certificates and the initial outstanding principal balance of the
Class B Certificates, as applicable, from the Closing Date. Interest due on the
Certificates but not paid on any Distribution Date will be payable on the next
succeeding Distribution Date together with additional interest on such amount at
the applicable Certificate Rate plus 2% per annum (such amount with respect to
the Class A Certificates, the "Class A Additional Interest," and such amount
with respect to the Class B Certificates, the "Class B Additional Interest" and
collectively, "Additional Interest"). Additional Interest shall accrue on the
same basis as interest on the Certificates, and shall accrue from the
Distribution Date on which such overdue interest first became due, to but
excluding the Distribution Date on which such Additional Interest is paid.
Interest payments on the Class A Certificates on any Distribution Date will be
paid from Class A Available Funds for the related Monthly Period, and to the
extent such Class A Available Funds are insufficient to pay such interest, from
Excess Spread and Reallocated Principal Collections (to the extent available)
for such Monthly Period. Interest payments on the Class B Certificates on any
Distribution Date will be paid from Class B Available Funds for the related
Monthly Period, and to the extent such Class B Available Funds are insufficient
to pay such interest, from Excess Spread and Reallocated Collateral Principal
Collections (to the extent available) remaining after certain other payments
have been made with respect to the Class A Certificates.
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class A Floating Allocation of collections of
Finance Charge Receivables allocated to the Investor Interest with respect to
such Monthly Period (excluding the portion of collections of Finance Charge
Receivables attributable to Interchange that is allocable to Servicer
Interchange), (b) Principal Funding Investment Proceeds, if any, with respect to
the related Transfer Date (up to the Class A Covered Amount for such Transfer
Date) and (c) amounts, if any, to be withdrawn from the Reserve Account which
are required to be included in Class A Available Funds pursuant to the Series
1996-A Supplement with respect to such Transfer Date. "Class B Available Funds"
means, with respect to any Monthly Period, an amount equal to the Class B
Floating Allocation of collections of Finance Charge Receivables allocated to
the Investor Interest with respect to such Monthly Period (excluding the portion
of collections of Finance Charge Receivables attributable to Interchange that is
allocable to Servicer Interchange).
The Class A Certificates will bear interest from the Closing Date through
June 14, 1996, and with respect to each Interest Period thereafter, at a rate of
6.65% per annum (the "Class A Rate"). The Class B Certificates will bear
interest from the Closing Date through May 14, 1996 and from May 15, 1996
through June 16, 1996, and with respect to each Interest Period thereafter, at a
rate agreed to between the Transferor and the purchaser of the Class B
Certificates not greater than 1% per annum above LIBOR prevailing on the related
LIBOR Determination Date with respect to each such period (the "Class B Rate").
The Trustee will determine LIBOR on April 19, 1996 for the period from the
Closing Date through May 14, 1996 and on May 13, 1996 for the period from May
15, 1996 through June 16, 1996, and for each Interest Period thereafter, on the
second business day prior to the Distribution Date on which such Interest Period
commences (each, a "LIBOR Determination Date"). For purposes of calculating
LIBOR, a business day is any business day on which dealings in deposits in
United States dollars are transacted in the London interbank market.
"LIBOR" means, as of any LIBOR Determination Date, the rate for deposits in
United States dollars for a one-month period which appears on Telerate Page 3750
as of 11:00 a.m., London time, on such date. "Telerate Page 3750" means the
display page currently so designated on the Dow Jones Telerate Service for the
purpose of displaying London interbank offered rates for deposits in United
States dollars as presented by the British Banker's Association. If such page
has been replaced or deleted, then LIBOR shall mean the rate for deposits in
United States dollars for a one-month period which appears, as of the
determination date and time specified above, on any other page on Telerate or
such other service (such as Reuters) that displays the London interbank offered
rate for deposits in United States dollars as presented by the British Banker's
Association. If such rate does not appear on any such other page or service, the
rate for that LIBOR Determination Date will be determined as the arithmetic mean
of the rates at which one-month deposits in United States dollars are offered to
prime banks in the London interbank market by four major banks in that market
selected by the Servicer as of the determination date and time specified above.
If fewer than two
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quotations are provided by such banks, then LIBOR shall be determined as the
arithmetic mean of the rates at which one-month loans in United States dollars
are offered to leading European banks by three major banks in New York City
selected by the Servicer as of 11:00 a.m. New York City time on the
determination date specified above.
Interest on the Class A Certificates will be calculated on the basis of a
360-day year of twelve 30-day months. Interest on the Class B Certificates will
be calculated on the basis of the actual number of days in the Interest Period
and a 360-day year.
PRINCIPAL PAYMENTS
On each Transfer Date relating to the Revolving Period (which begins on the
Closing Date and ends at the commencement of the Controlled Accumulation Period
or, if earlier, the Rapid Amortization Period), unless a reduction in the
Required Collateral Interest has occurred, collections of Principal Receivables
allocable to the Investor Interest will, subject to certain limitations,
including the allocation of any Reallocated Principal Collections with respect
to the related Monthly Period to pay the Class A Required Amount and the Class B
Required Amount, be treated as Shared Principal Collections.
On each Transfer Date relating to the Controlled Accumulation Period, the
Trustee will deposit in the Principal Funding Account an amount equal to the
least of (a) Available Investor Principal Collections with respect to such
Transfer Date, (b) the applicable Controlled Deposit Amount and (c) the Class A
Adjusted Investor Interest prior to any deposits on such date. Amounts in the
Principal Funding Account will be paid to the Class A Holders on the Class A
Scheduled Payment Date. After the Class A Investor Interest has been paid or
provided for in full, on each Transfer Date during the Controlled Accumulation
Period, amounts equal to the lesser of (a) remaining Available Investor
Principal Collections with respect to such Transfer Date and (b) the Class B
Investor Interest will be deposited in the Distribution Account for distribution
to the Class B Holders until the Class B Investor Interest has been paid in
full. Such amounts in the Distribution Account will be paid to the Class B
Holders on the Class B Scheduled Payment Date. On each Transfer Date, if a
reduction in the Required Collateral Interest has occurred, a portion of
collections of Principal Receivables allocable to the Investor Interest will be
applied in accordance with the Loan Agreement to reduce the Collateral Interest
to the Required Collateral Interest. During the Controlled Accumulation Period
until the final principal payment to the Class B Holders, the portion of
Available Investor Principal Collections not applied to Class A Monthly
Principal, Class B Monthly Principal or Collateral Monthly Principal on a
Transfer Date will generally be treated as Shared Principal Collections.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a) (i) collections of Principal
Receivables received during such Monthly Period and certain other amounts, in
each case which are allocable to the Investor Interest, minus (ii) the amount of
Reallocated Principal Collections with respect to such Monthly Period used to
fund interest on the Certificates or Servicing Fee, plus (b) any Shared
Principal Collections with respect to other Series in Group One that are
allocated to Series 1996-A.
On each Distribution Date commencing with the first Distribution Date
following the date the Rapid Amortization Period begins, the Class A Holders
will be entitled to receive Available Investor Principal Collections for the
related Monthly Period in an amount up to the Class A Investor Interest until
the earlier of the date the Class A Certificates are paid in full and the Series
1996-A Termination Date. After payment in full of the Class A Investor Interest,
the Class B Holders will be entitled to receive on each Distribution Date during
the Rapid Amortization Period Available Investor Principal Collections until the
earlier of the date the Class B Certificates are paid in full and the Series
1996-A Termination Date. After payment in full of the Class B Investor Interest,
the Collateral Interest Holder will be entitled to receive on each Transfer Date
(other than the Transfer Date prior to the Series 1996-A Termination Date) and
on the Series 1996-A Termination Date, Available Investor Principal Collections
until the earlier of the date the Collateral Interest is paid in full and the
Series 1996-A Termination Date. See "-- Pay Out Events" below for a discussion
of events which might lead to the commencement of the Rapid Amortization Period.
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POSTPONEMENT OF CONTROLLED ACCUMULATION PERIOD
Upon written notice to the Trustee, the Transferor and each Rating Agency,
the Servicer may elect to postpone the commencement of the Controlled
Accumulation Period, and extend the length of the Revolving Period, subject to
certain conditions including those set forth below. The Servicer may make such
election only if the Accumulation Period Length (determined as described below)
is less than twelve months. On each Determination Date on or after the March
2000 Determination Date, until the Controlled Accumulation Period begins, the
Servicer will determine the "Accumulation Period Length," which is a number of
months such that the amount available for distribution of principal on the Class
A Certificates on the Class A Scheduled Payment Date is expected to equal or
exceed the Class A Investor Interest, assuming (a) the expected monthly
collections of Principal Receivables expected to be distributable to the Holders
of all Series have a principal payment rate no greater than the lowest monthly
principal payment rate on the Receivables for the preceding twelve months, (b)
the amount of principal expected to be distributable to Holders of all Series
remains constant at the level on such date of determination, (c) no Pay Out
Event with respect to any Series will subsequently occur and (d) no additional
Series will be subsequently issued. If the Accumulation Period Length is less
than twelve months, the Servicer may, at its option, postpone the commencement
of the Controlled Accumulation Period such that the number of months included in
the Controlled Accumulation Period will be equal to or exceed the Accumulation
Period Length. The effect of the foregoing calculation is to permit the
reduction of the length of the Controlled Accumulation Period based on the
investor interest of certain other Series which are scheduled to be in their
revolving periods during the Controlled Accumulation Period and on increases in
the principal payment rate occurring after the Closing Date. The length of the
Controlled Accumulation Period will not be determined to be less than one month.
SUBORDINATION
The Class B Certificates and the Collateral Interest will be subordinated to
the extent necessary to fund certain payments with respect to the Class A
Certificates. In addition, the Collateral Interest will be subordinated to the
extent necessary to fund certain payments with respect to the Class B
Certificates. Certain principal payments otherwise allocable to the Class B
Holders may be reallocated to cover amounts in respect of the Class A
Certificates and the Class B Investor Interest may be reduced if the Collateral
Interest is equal to zero. Similarly, certain principal payments allocable to
the Collateral Interest may be reallocated to cover amounts in respect of the
Class A Certificates and the Class B Certificates and the Collateral Interest
may be reduced. To the extent the Class B Investor Interest is reduced, the
percentage of collections of Finance Charge Receivables allocated to the Class B
Certificates in subsequent Monthly Periods will be reduced. Moreover, to the
extent the amount of such reduction in the Class B Investor Interest is not
reimbursed, the amount of principal and interest distributable to the Class B
Holders will be reduced. See "-- Allocation Percentages," "-- Reallocation of
Cash Flows" and "-- Application of Collections -- Excess Spread."
ALLOCATION PERCENTAGES
Pursuant to the Agreement, with respect to each Monthly Period the Servicer
will allocate among the Investor Interest, the investor interest for all other
Series issued and outstanding and the Transferor Interest, all amounts collected
on Finance Charge Receivables, all amounts collected on Principal Receivables
and all Default Amounts with respect to such Monthly Period.
Collections of Finance Charge Receivables and Default Amounts at any time
and collections of Principal Receivables during the Revolving Period will be
allocated to the Investor Interest based on the Floating Investor Percentage.
The "Floating Investor Percentage" means, with respect to any Monthly Period,
the percentage equivalent of a fraction, the numerator of which is the Adjusted
Investor Interest as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, the initial
Investor Interest) and the denominator of which is the greater of (a) the
aggregate amount of Principal Receivables as of the close of business on the
last day of the preceding Monthly Period (or with respect to the first Monthly
Period, the aggregate amount of Principal Receivables as of the close of
business on the day immediately preceding the Closing Date) and (b) the sum of
the numerators used to calculate the Investor Percentages for allocations with
respect to Finance Charge Receivables, Default Amounts or
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Principal Receivables, as applicable, for all outstanding Series on such date of
determination; provided, however, that if one or more Reset Dates occur in a
Monthly Period, the Floating Investor Percentage for the portion of the Monthly
Period falling after each such Reset Date (the "subject Reset Date") and on or
prior to the earlier of the last day of the current Monthly Period and any
subsequent Reset Date shall be determined using a denominator equal to the
greater of the amounts specified in clause (a) and (b) above determined as of
the subject Reset Date.
The amounts so allocated will be further allocated between the Class A
Holders, Class B Holders and the Collateral Interest Holder based on the Class A
Floating Allocation, the Class B Floating Allocation and the Collateral Floating
Allocation, respectively. The "Class A Floating Allocation" means, with respect
to any Monthly Period, the percentage equivalent (which percentage shall never
exceed 100%) of a fraction, the numerator of which is equal to the Class A
Adjusted Investor Interest as of the close of business on the last day of the
preceding Monthly Period (or with respect to the first Monthly Period, as of the
Closing Date) and the denominator of which is equal to the Adjusted Investor
Interest as of the close of business on such day. The "Class B Floating
Allocation" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is equal to the Class B Investor Interest as of the close of business on the
last day of the preceding Monthly Period (or with respect to the first Monthly
Period, as of the Closing Date) and the denominator of which is equal to the
Adjusted Investor Interest as of the close of business on such day. The
"Collateral Floating Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is equal to the Collateral Interest as of the close of
business on the last day of the preceding Monthly Period (or with respect to the
first Monthly Period, as of the Closing Date) and the denominator of which is
equal to the Adjusted Investor Interest as of the close of business on such day.
Collections of Principal Receivables during the Controlled Accumulation
Period and Rapid Amortization Period will be allocated to the Investor Interest
based on the Fixed Investor Percentage. The "Fixed Investor Percentage" means,
with respect to any Monthly Period, the percentage equivalent of a fraction, the
numerator of which is the Investor Interest as of the close of business on the
last day of the Revolving Period and the denominator of which is the greater of
(a) the aggregate amount of Principal Receivables as of the close of business on
the last day of the prior Monthly Period and (b) the sum of the numerators used
to calculate the Investor Percentages for allocations with respect to Principal
Receivables for all outstanding Series for such Monthly Period; provided, that
(x) if Series 1996-A is paired with a Paired Series and a Pay Out Event occurs
with respect to such Paired Series during the Controlled Accumulation Period,
the Transferor may, by written notice delivered to the Trustee and the Servicer,
designate a different numerator (provided that such numerator is not less than
the Adjusted Investor Interest (less the balance on deposit in the Principal
Account) as of the last day of the revolving period for such Paired Series); and
(y) if one or more Reset Dates occur in a Monthly Period, the Fixed Investor
Percentage for the portion of the Monthly Period falling after each such Reset
Date (the "subject Reset Date") and prior to the earlier of the last day of the
current Monthly Period and any subsequent Reset Date shall be determined using a
denominator equal to the greater of the amounts specified in clause (a) and (b)
above determined as of the subject Reset Date.
The amounts so allocated will be further allocated between the Class A
Holders, the Class B Holders and the Collateral Interest Holder based on the
Class A Fixed Allocation, the Class B Fixed Allocation and the Collateral Fixed
Allocation, respectively. The "Class A Fixed Allocation" means, with respect to
any Monthly Period, the percentage equivalent (which percentage shall never
exceed 100%) of a fraction, the numerator of which is equal to the Class A
Investor Interest as of the close of business on the last day of the Revolving
Period, and the denominator of which is equal to the numerator used in
determining the related Fixed Investor Percentage; provided, that if Series
1996-A is paired with a Paired Series and a Pay Out Event occurs with respect to
such Paired Series during the Controlled Accumulation Period, the Transferor
may, by written notice delivered to the Trustee and the Servicer, designate a
different numerator (provided that such numerator is not less than the Class A
Adjusted Investor Interest (less the balance on deposit in the Principal
Account) as of the last day of the revolving period for such Paired Series. The
"Class B Fixed Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which percentage shall never exceed
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100%) of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the Revolving Period,
and the denominator of which is equal to the numerator used in determining the
related Fixed Investor Percentage; provided, that if Series 1996-A is paired
with a Paired Series and a Pay Out Event occurs with respect to such Paired
Series during the Controlled Accumulation Period, the Transferor may, by written
notice delivered to the Trustee and the Servicer, designate a different
numerator (provided that such numerator is not less than the Class B Investor
Interest (less, if the Class A Fixed Allocation is zero, the balance on deposit
in the Principal Account and the Principal Funding Account, in each case to the
extent not subtracted in reducing the Class A Fixed Allocation to zero) as of
the last day of the revolving period for such Paired Series. The "Collateral
Fixed Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Collateral Interest as of the close of
business on the last day of the Revolving Period, and the denominator of which
is equal to the numerator used in determining the related Fixed Investor
Percentage; provided, that if Series 1996-A is paired with a Paired Series and a
Pay Out Event occurs with respect to such Paired Series during the Controlled
Accumulation Period, the Transferor may, by written notice delivered to the
Trustee and the Servicer, designate a different numerator (provided that such
numerator is not less than the Collateral Interest (less, if the Class B Fixed
Allocation is zero, the balance on deposit in the Principal Account, to the
extent not subtracted in reducing the Class B Fixed Allocation to zero) as of
the last day of the revolving period for such Paired Series.
"Class A Adjusted Investor Interest," for any date of determination, means
an amount equal to the then current Class A Investor Interest, minus the
Principal Funding Account Balance on such date.
"Class A Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class A Certificates, minus (b) the
aggregate amount of principal payments made to Class A Holders prior to such
date, minus (c) the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs for all Transfer Dates preceding such date over the aggregate amount
of any reimbursements of Class A Investor Charge-Offs for all Transfer Dates
preceding such date; provided, however, that the Class A Investor Interest may
not be reduced below zero.
"Class B Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class B Certificates, MINUS (b) the
aggregate amount of principal payments made to Class B Holders prior to such
date, MINUS (c) the aggregate amount of Class B Investor Charge-Offs for all
prior Transfer Dates, MINUS (d) the aggregate amount of Reallocated Class B
Principal Collections for all prior Transfer Dates for which the Collateral
Interest has not been reduced, MINUS (e) an amount equal to the aggregate amount
by which the Class B Investor Interest has been reduced to fund the Class A
Investor Default Amount on all prior Transfer Dates as described under "--
Defaulted Receivables; Investor Charge-Offs," PLUS (f) the aggregate amount of
Excess Spread allocated and available on all prior Transfer Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c),
(d) and (e); PROVIDED, HOWEVER, that the Class B Investor Interest may not be
reduced below zero.
"Collateral Interest" for any date means an amount equal to (a) the Initial
Collateral Interest, MINUS (b) the aggregate amount of principal payments made
to the Collateral Interest Holder prior to such date, MINUS (c) the aggregate
amount of Collateral Charge-Offs for all prior Transfer Dates, MINUS (d) the
aggregate amount of Reallocated Principal Collections for all prior Transfer
Dates, MINUS (e) an amount equal to the aggregate amount by which the Collateral
Interest has been reduced to fund the Class A Investor Default Amount and the
Class B Investor Default Amount on all prior Transfer Dates as described under
"-- Defaulted Receivables; Investor Charge-Offs," PLUS (f) the aggregate amount
of Excess Spread allocated and available on all prior Transfer Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c),
(d) and (e); PROVIDED, HOWEVER, that the Collateral Interest may not be reduced
below zero.
"Reset Date" means each of (a) any date on which Receivables in Additional
Accounts are conveyed to Trust I, (b) any date on which Accounts are removed
from Trust I and on which, if any Series has been paid in
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full, Principal Receivables in an aggregate amount approximately equal to the
initial investor interest of such Series are removed from Trust I and (c) a date
on which there is an increase in the Investor Interest under any Variable
Interest issued by Trust I.
"Variable Interest" means either of (a) any certificate that is designated
as a variable funding certificate in the related Series Supplement and (b) any
Purchased Interest sold as permitted by the Agreement.
REALLOCATION OF CASH FLOWS
With respect to each Transfer Date, the Servicer will determine the amount
(the "Class A Required Amount"), if any, by which the sum of (a) Class A Monthly
Interest due on the related Distribution Date and overdue Class A Monthly
Interest and Class A Additional Interest thereon, if any, (b) the Class A
Servicing Fee for the related Monthly Period and overdue Class A Servicing Fee,
if any, and (c) the Class A Investor Default Amount, if any, for the related
Monthly Period exceeds the Class A Available Funds for the related Monthly
Period. If the Class A Required Amount is greater than zero, Excess Spread
allocated to Series 1996-A and available for such purpose will be used to fund
the Class A Required Amount with respect to such Transfer Date. If such Excess
Spread is insufficient to fund the Class A Required Amount, first, Reallocated
Collateral Principal Collections and, then, Reallocated Class B Principal
Collections will be used to fund the remaining Class A Required Amount. If
Reallocated Principal Collections with respect to the related Monthly Period,
together with Excess Spread, are insufficient to fund the remaining Class A
Required Amount for such related Monthly Period, then the Collateral Interest
(after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date) will be reduced by the
amount of such excess (but not by more than the Class A Investor Default Amount
for such Monthly Period). In the event that such reduction would cause the
Collateral Interest to be a negative number, the Collateral Interest will be
reduced to zero, and the Class B Investor Interest (after giving effect to
reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections for which the Collateral Interest was not reduced on such
Transfer Date) will be reduced by the amount by which the Collateral Interest
would have been reduced below zero (but not by more than the excess of the Class
A Investor Default Amount, if any, for such Monthly Period over the amount of
such reduction, if any, of the Collateral Interest with respect to such Monthly
Period). In the event that such reduction would cause the Class B Investor
Interest to be a negative number, the Class B Investor Interest will be reduced
to zero and the Class A Investor Interest will be reduced by the amount by which
the Class B Investor Interest would have been reduced below zero (but not by
more than the excess, if any, of the Class A Investor Default Amount for such
Monthly Period over the amount of the reductions, if any, of the Collateral
Interest and the Class B Investor Interest with respect to such Monthly Period).
Any such reduction in the Class A Investor Interest will have the effect of
slowing or reducing the return of principal and interest to the Class A Holders.
In such case, the Class A Holders will bear directly the credit and other risks
associated with their interests in Trust I. See "-- Defaulted Receivables;
Investor Charge-Offs."
With respect to each Transfer Date, the Servicer will determine the amount
(the "Class B Required Amount"), which will be equal to the sum of (a) the
amount, if any, by which the sum of (i) Class B Monthly Interest due on the
related Distribution Date and overdue Class B Monthly Interest and Class B
Additional Interest thereon, if any, and (ii) the Class B Servicing Fee for the
related Monthly Period and overdue Class B Servicing Fee, if any, exceeds the
Class B Available Funds for the related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related Monthly Period. If the Class B
Required Amount is greater than zero, Excess Spread allocated to Series 1996-A
not required to pay the Class A Required Amount or reimburse Class A Investor
Charge-Offs will be used to fund the Class B Required Amount with respect to
such Transfer Date. If such Excess Spread is insufficient to fund the Class B
Required Amount, Reallocated Collateral Principal Collections not required to
fund the Class A Required Amount for the related Monthly Period will be used to
fund the remaining Class B Required Amount. If such Reallocated Collateral
Principal Collections with respect to the related Monthly Period are
insufficient to fund the remaining Class B Required Amount, then the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date and after any
adjustments made thereto for the benefit of the Class A Holders) will be reduced
by the amount of such deficiency (but not by more than the Class B Investor
Default Amount for such Monthly Period). In the event that such
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a reduction would cause the Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero, and the Class B Investor Interest
will be reduced by the amount by which the Collateral Interest would have been
reduced below zero (but not by more than the excess of the Class B Investor
Default Amount for such Monthly Period over the amount of such reduction of the
Collateral Interest), and the Class B Holders will bear directly the credit and
other risks associated with their interests in Trust I. See "-- Defaulted
Receivables; Investor Charge-Offs."
Reductions of the Class A Investor Interest or Class B Investor Interest
described above will be reimbursed by, and the Class A Investor Interest or
Class B Investor Interest increased to the extent of, Excess Spread available
for such purposes on each Transfer Date. See "-- Application of Collections --
Excess Spread." When such reductions of the Class A Investor Interest and Class
B Investor Interest have been fully reimbursed, reductions of the Collateral
Interest shall be reimbursed until reimbursed in full in a similar manner.
"Reallocated Class B Principal Collections" for any Monthly Period means
collections of Principal Receivables allocable to the Class B Investor Interest
for the related Monthly Period in an amount not to exceed the amount applied to
fund the Class A Required Amount, if any; provided, however, that such amount
will not exceed the Class B Investor Interest after giving effect to any Class B
Investor Charge-Offs for the related Transfer Date.
"Reallocated Collateral Principal Collections" for any Monthly Period means
collections of Principal Receivables allocable to the Collateral Interest for
the related Monthly Period in an amount not to exceed the amount applied to fund
the Class A Required Amount and the Class B Required Amount, if any; provided,
however, that such amount will not exceed the Collateral Interest after giving
effect to any Collateral Charge-Offs for the related Transfer Date.
"Reallocated Principal Collections" for any Monthly Period means the sum of
(a) the Reallocated Class B Principal Collections for such Monthly Period, if
any, and (b) the Reallocated Collateral Principal Collections for such Monthly
Period, if any.
APPLICATION OF COLLECTIONS
ALLOCATIONS. Except as otherwise provided below, the Servicer will deposit
into the Collection Account, no later than the second business day following the
date of processing, any payment collected by the Servicer on the Receivables. On
the same day as any such deposit is made, the Servicer will make the deposits
and payments to the accounts and parties as indicated below; provided, however,
that for as long as First Omni remains the Servicer under the Agreement and (a)
(i) the Servicer provides to the Trustee a letter of credit or other credit
enhancement covering the risk of collection of the Servicer acceptable to the
Rating Agencies and (ii) the Rating Agency Condition shall have been satisfied
with respect to reliance on such letter of credit or other credit enhancement or
(b) the certificate of deposit or unsecured short-term debt obligations of the
Transferor are rated P-1 by Moody's and at least A-1 by Standard & Poor's (and,
if rated by Fitch Investors Service, L.P. ("Fitch"), at least F-1 by Fitch) and
insured by either BIF or SAIF or (c) the Transferor makes other arrangements
satisfactory to each Rating Agency rating any Series then outstanding, then the
Servicer may make such deposits and payments on the business day immediately
prior to the Distribution Date (the "Transfer Date") in an amount equal to the
net amount of such deposits and payments which would have been made had the
conditions of this proviso not applied.
With respect to the Certificates and any Monthly Period, and notwithstanding
anything in the Agreement to the contrary, whether the Servicer is required to
make monthly or daily deposits into the Collection Account, (i) the Servicer
will only be required to deposit Collections into the Collection Account or from
the Collection Account into the Finance Charge Account or the Principal Account,
up to the required amount to be deposited into any such deposit account or,
without duplication, distributed on or prior to the related Distribution Date to
Holders or to the Collateral Interest Holder and (ii) if at any time prior to
such Distribution Date the amount of Collections deposited in any such deposit
account exceeds the amount required to be deposited pursuant to clause (i)
above, the Servicer will be permitted to withdraw the excess from such an
account.
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PAYMENT OF INTEREST, FEES AND OTHER ITEMS. On each Transfer Date, the
Trustee, acting pursuant to Servicer's instructions, will apply the Class A
Available Funds, Class B Available Funds and Collateral Available Funds in the
Finance Charge Account in the following manner:
(a) On each Transfer Date, an amount equal to the Class A Available
Funds will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for the related
Distribution Date, plus the amount of any overdue Class A Monthly
Interest and Class A Additional Interest thereon, if any, will be
deposited into the Distribution Account for distribution to Class A
Holders on such Distribution Date;
(ii) an amount equal to the Class A Servicing Fee for the related
Monthly Period, plus the amount of any overdue Class A Servicing Fee,
will be paid to the Servicer;
(iii) an amount equal to the Class A Investor Default Amount, if any,
for the related Monthly Period will be treated as a portion of Available
Investor Principal Collections and deposited into the Principal Account
for such Transfer Date; and
(iv) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "-- Excess
Spread."
(b) On each Transfer Date, an amount equal to the Class B Available
Funds will be distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for the related
Distribution Date, plus the amount of any overdue Class B Monthly
Interest and Class B Additional Interest thereon, if any, will be
deposited into the Distribution Account for distribution to Class B
Holders on such Distribution Date;
(ii) an amount equal to the Class B Servicing Fee for the related
Monthly Period, plus the amount of any overdue Class B Servicing Fee,
will be paid to the Servicer; and
(iii) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "-- Excess
Spread."
(c) On each Transfer Date, an amount equal to the Collateral Available
Funds will be distributed in the following priority:
(i) if First Omni or the Trustee is no longer the Servicer, an amount
equal to the Collateral Interest Servicing Fee for the related Monthly
Period, plus the amount of any overdue Collateral Interest Servicing Fee,
will be paid to the Servicer; and
(ii) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "-- Excess
Spread."
"Class A Monthly Interest" with respect to any Distribution Date will equal
the product of (i) the Class A Rate for the related Interest Period, (ii)
one-twelfth, and (iii) the outstanding principal balance of the Class A
Certificates as of the related Record Date; provided, however, with respect to
the first Distribution Date, Class A Monthly Interest will be equal to the
interest accrued on the initial outstanding principal balance of the Class A
Certificates at the Class A Rate for the period from the Closing Date through
June 14, 1996.
"Class B Monthly Interest" with respect to any Distribution Date will equal
the product of (i) the Class B Rate for the related Interest Period, (ii) the
actual number of days in such Interest Period divided by 360 and (iii) the
outstanding principal balance of the Class B Certificates as of the related
Record Date; provided, however, with respect to the first Distribution Date,
Class B Monthly Interest will be equal to the sum of (A) the product of (x) the
Class B Rate, determined as described herein using an April 19, 1996 LIBOR
Determination Date, (y) the actual number of days during the period from the
Closing Date through May 14, 1996 divided by 360 and (z) the outstanding
principal balance of the Class B Certificates as of the
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Closing Date, plus (B) the product of (x) the Class B Rate, determined as
described herein using a May 13, 1996 LIBOR Determination Date, (y) the actual
number of days during the period from May 15, 1996 through June 16, 1996 divided
by 360 and (z) the outstanding principal balance of the Class B Certificates as
of the Closing Date.
"Collateral Available Funds" means, with respect to any Monthly Period, an
amount equal to the Collateral Floating Allocation of collections of Finance
Charge Receivables allocated to the Investor Interest with respect to such
Monthly Period (excluding the portion of collections of Finance Charge
Receivables attributable to Interchange that is allocable to Servicer
Interchange).
"Excess Spread" means, with respect to any Transfer Date, an amount equal to
the sum of the amounts described in clause (a) (iv), clause (b) (iii) and clause
(c) (ii) above. To the extent such amounts are insufficient to make the
distributions required by subparagraphs (a) through (i) below under "-- Excess
Spread," Excess Spread shall also be deemed to include any Excess Finance Charge
Collections allocable to other Series available to Series 1996-A in accordance
with the Agreement.
EXCESS SPREAD. On each Transfer Date, the Trustee, acting pursuant to the
Servicer's instructions, will apply Excess Spread with respect to the related
Monthly Period, to make the following distributions in the following priority:
(a) an amount equal to the Class A Required Amount, if any, with respect
to such Transfer Date will be used to fund the Class A Required Amount;
provided, that in the event the Class A Required Amount for such Transfer
Date exceeds the amount of Excess Spread, such Excess Spread shall be
applied first to pay amounts due with respect to such Transfer Date pursuant
to clause (a)(i) above under "-- Payment of Interest, Fees and Other Items,"
second to pay amounts due with respect to such Transfer Date pursuant to
clause (a) (ii) above under "-- Payment of Interest, Fees and Other Items"
and third to pay amounts due with respect to such Transfer Date pursuant to
clause (a) (iii) above under "-- Payment of Interest, Fees and Other Items";
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed (after giving effect
to the allocation on such Transfer Date of certain other amounts applied for
that purpose) will be deposited into the Principal Account and treated as a
portion of Available Investor Principal Collections for such Transfer Date
as described under "-- Payments of Principal" below;
(c) an amount equal to the Class B Required Amount, if any, with respect
to such Transfer Date will be used to fund the Class B Required Amount and
will be applied first to pay amounts due with respect to such Transfer Date
pursuant to clause (b) (i) above under "-- Payment of Interest, Fees and
Other Items," second to pay amounts due with respect to such Transfer Date
pursuant to clause (b) (ii) above under "-- Payment of Interest, Fees and
Other Items" and third, the amount remaining, up to the Class B Investor
Default Amount, will be deposited into the Principal Account and treated as
a portion of Available Investor Principal Collections for such Transfer Date
as described under "-- Payments of Principal" below;
(d) an amount equal to the aggregate amount by which the Class B
Investor Interest has been reduced below the initial Class B Investor
Interest for reasons other than the payment of principal to the Class B
Holders (but not in excess of the aggregate amount of such reductions which
have not been previously reimbursed) will be deposited into the Principal
Account and treated as a portion of Available Investor Principal Collections
for such Transfer Date as described under "-- Payments of Principal" below;
(e) an amount equal to the Collateral Monthly Interest for such Transfer
Date, plus the amount of any Collateral Monthly Interest previously due but
not distributed to the Collateral Interest Holder on a prior Transfer Date,
will be distributed to the Collateral Interest Holder for distribution in
accordance with the Loan Agreement;
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(f) if First Omni or the Trustee is the Servicer, an amount equal to the
Collateral Interest Servicing Fee for the related Monthly Period, plus the
amount of any overdue Collateral Interest Servicing Fee, will be paid to the
Servicer;
(g) an amount equal to the aggregate Collateral Default Amount, if any,
for such Transfer Date will be deposited into the Principal Account and
treated as a portion of Available Investor Principal Collections for such
Transfer Date as described under "-- Payments of Principal" below;
(h) an amount equal to the aggregate amount by which the Collateral
Interest has been reduced below the Required Collateral Interest for reasons
other than the payment of principal to the Collateral Interest Holder (but
not in excess of the aggregate amount of such reductions which have not been
previously reimbursed) will be deposited into the Principal Account and
treated as a portion of Available Investor Principal Collections for such
Transfer Date as described under "-- Payments of Principal" below;
(i) on each Transfer Date from and after the Reserve Account Funding
Date, but prior to the date on which the Reserve Account terminates as
described under "-- Reserve Account," an amount up to the excess, if any, of
the Required Reserve Account Amount over the Available Reserve Account
Amount will be deposited into the Reserve Account;
(j) an amount equal to all other amounts due under the Loan Agreement
(to the extent payable out of Excess Spread or Excess Finance Charge
Collections) shall be distributed in accordance with the Loan Agreement; and
(k) the balance, if any, after giving effect to the payments made
pursuant to subparagraphs (a) through (j) above, will constitute "Excess
Finance Charge Collections" to be applied with respect to other Series in
accordance with the Agreement.
"Collateral Monthly Interest" with respect to any Transfer Date will equal
the product of (a) an amount equal to LIBOR plus 1.0% per annum, or such lesser
amount as may be designated in the Loan Agreement (the "Collateral Rate"), (b)
the actual number of days in the related Interest Period divided by 360 and (c)
the Collateral Interest as of the related Record Date; provided, however, with
respect to the first Distribution Date, Collateral Monthly Interest will be
equal to the sum of (A) the product of (x) the Collateral Rate, determined as
described herein using an April 19, 1996 LIBOR Determination Date, (y) the
actual number of days during the period from the Closing Date through May 14,
1996 divided by 360 and (z) the Collateral Interest as of the Closing Date, plus
(B) the product of (x) the Collateral Rate, determined as described herein using
a May 13, 1996 LIBOR Determination Date, (y) the actual number of days during
the period from May 15, 1996 through June 16, 1996 divided by 360 and (z) the
Collateral Interest as of the Closing Date.
PAYMENTS OF PRINCIPAL. On each Transfer Date, the Trustee, acting pursuant
to the Servicer's instructions, will distribute Available Investor Principal
Collections (see "-- Principal Payments" above) on deposit in the Principal
Account in the following manner:
(a) on each Transfer Date with respect to the Revolving Period, all such
Available Investor Principal Collections will be distributed or deposited in
the following priority:
(i) an amount equal to the Collateral Monthly Principal will be paid
to the Collateral Interest Holder in accordance with the Loan Agreement;
and
(ii) the balance will be treated as Shared Principal Collections and
applied as described under "Description of the Certificates -- Shared
Principal Collections" herein and in the Prospectus;
(b) on each Transfer Date with respect to the Controlled Accumulation
Period or the Rapid Amortization Period, all such Available Investor
Principal Collections will be distributed or deposited in the following
priority:
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(i) an amount equal to Class A Monthly Principal will be deposited in
the Principal Funding Account (during the Controlled Accumulation Period)
or distributed to the Class A Holders (during the Rapid Amortization
Period); and
(ii) for each Transfer Date after the Class A Investor Interest has
been paid in full (after taking into account payments to be made on the
related Distribution Date), an amount equal to the Class B Monthly
Principal for such Transfer Date will be distributed to the Class B
Holders;
(c) on each Transfer Date with respect to the Controlled Accumulation
Period and the Rapid Amortization Period in which a reduction in the
Required Collateral Interest has occurred, Available Investor Principal
Collections not applied to Class A Monthly Principal or Class B Monthly
Principal will be applied to reduce the Collateral Interest to the Required
Collateral Interest; and
(d) on each Transfer Date with respect to the Controlled Accumulation
Period and Rapid Amortization Period, the balance of Available Investor
Principal Collections not applied pursuant to (b) and (c) above, if any,
will be treated as Shared Principal Collections and applied as described
under "Description of the Certificates -- Shared Principal Collections"
herein and in the Prospectus.
"Class A Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period or the Rapid Amortization Period, prior to
the payment in full of the Class A Investor Interest, will equal the least of
(i) the Available Investor Principal Collections on deposit in the Principal
Account with respect to such Transfer Date, (ii) for each Transfer Date with
respect to the Controlled Accumulation Period, prior to the payment in full of
the Class A Investor Interest, and on or prior to the Class A Scheduled Payment
Date, the applicable Controlled Deposit Amount for such Transfer Date and (iii)
the Class A Adjusted Investor Interest prior to any deposits on such Transfer
Date.
"Class B Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period or the Rapid Amortization Period, after the
Class A Certificates have been paid in full (after taking into account payments
to be made on the related Distribution Date), will equal the lesser of (i) the
Available Investor Principal Collections on deposit in the Principal Account
with respect to such Transfer Date (minus the portion of such Available Investor
Principal Collections applied to Class A Monthly Principal on such Transfer
Date) and (ii) the Class B Investor Interest for such Transfer Date.
"Collateral Monthly Principal" means (a) with respect to any Transfer Date
relating to the Revolving Period following any reduction of the Required
Collateral Interest pursuant to clause (3) of the proviso in the definition
thereof an amount equal to the lesser of (i) the excess, if any, of the
Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and Reallocated Principal Collections on such Transfer Date and
after giving effect to any adjustments thereto for the benefit of the Class A
Holders and the Class B Holders on such Transfer Date) over the Required
Collateral Interest on such Transfer Date, and (ii) the Available Investor
Principal Collections on such Transfer Date or (b) with respect to any Transfer
Date relating to the Controlled Accumulation Period or Rapid Amortization Period
an amount equal to the lesser of (i) the excess, if any, of the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
Reallocated Principal Collections on such Transfer Date and after giving effect
to any adjustments thereto for the benefit of the Class A Holders and the Class
B Holders on such Transfer Date) over the Required Collateral Interest on such
Transfer Date, and (ii) the excess, if any, of (A) the Available Investor
Principal Collections on such Transfer Date over (B) the sum of the Class A
Monthly Principal and the Class B Monthly Principal for such Transfer Date.
"Controlled Accumulation Amount" means for any Transfer Date with respect to
the Controlled Accumulation Period, prior to the payment in full of the Class A
Investor Interest, $36,875,000; provided, however, that if the commencement of
the Controlled Accumulation Period is modified as described above under "--
Postponement of Controlled Accumulation Period," (i) the Controlled Accumulation
Amount for each Transfer Date with respect to the Controlled Accumulation Period
shall mean the amount determined in accordance with the Agreement on the date on
which the Controlled Accumulation Period has most recently been modified and
(ii) the sum of the Controlled Accumulation Amounts for all Transfer Dates with
respect to the modified Controlled Accumulation Period shall not be less than
the Class A Investor Interest.
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SHARED EXCESS FINANCE CHARGE COLLECTIONS
To the extent that collections of Finance Charge Receivables allocated to
the Investor Interest (and any other amounts that are to be treated as
collections of Finance Charge Receivables allocated to the Investor Interest)
are not needed to make payment in respect of the Investor Interest as described
above under "-- Application of Collections -- Payment of Interest, Fees and
Other Items" and "-- Excess Spread," such Excess Finance Charge Collections will
be applied to make payments in respect of other Series in Group One entitled to
share therein in accordance with the Agreement. In addition, Excess Finance
Charge Collections with respect to certain other Series in Group One, to the
extent not required to make payments in respect of such Series, may be applied
to cover shortfalls in amounts payable from Excess Spread as described above
under "-- Application of Collections -- Excess Spread" (as well as shortfalls
experienced by other Series).
SHARED PRINCIPAL COLLECTIONS
Collections of Principal Receivables for any Monthly Period allocated to the
Investor Interest (and not allocated as Reallocated Principal Collections) will
first be used to cover, with respect to any Monthly Period during the Controlled
Accumulation Period, deposits of the applicable Controlled Deposit Amount to the
Principal Funding Account or the Distribution Account, and during the Rapid
Amortization Period, payments to the Holders and then under certain
circumstances payments to the Collateral Interest Holder. The Servicer will
determine the amount of collections of Principal Receivables for any Monthly
Period allocated to the Investor Interest remaining after covering required
payments to the Holders and any similar amount remaining for any other Series in
Group One ("Shared Principal Collections"). The Servicer will allocate the
Shared Principal Collections to cover any scheduled or permitted principal
distributions to certificateholders and deposits to principal funding accounts,
if any, for any Series entitled thereto which have not been covered out of the
Collections of Principal Receivables allocable to such Series and certain other
amounts for such Series ("Principal Shortfalls"). Shared Principal Collections
will not be used to cover investor charge-offs for any Series. If Principal
Shortfalls exceed Shared Principal Collections for any Monthly Period, Shared
Principal Collections will be allocated pro rata among the applicable Series
based on the relative amounts of Principal Shortfalls. To the extent that Shared
Principal Collections exceed Principal Shortfalls, the balance will be paid to
the holder of the Transferor Certificate or, under certain circumstances,
deposited into the Excess Funding Account.
DEFEASANCE
Pursuant to the Agreement, the Transferor may be discharged from its
substantive obligations in respect of the Certificates or in respect of any or
all Series issued by Trust I (in any case, the "Defeased Series") by depositing
with the Trustee, under the terms of an irrevocable trust agreement satisfactory
to the Trustee, from amounts representing or acquired with collections on the
Receivables (allocable to the Defeased Series and available to purchase
additional Receivables) monies or Permitted Investments sufficient to make all
remaining scheduled interest and principal payments on the Defeased Series on
the dates scheduled for such payments and to pay all amounts owing to the
Collateral Interest Holder or any Credit Enhancement Provider, as the case may
be, for the Defeased Series. To achieve that end, the Transferor has the right
to use collections on Receivables to purchase Permitted Investments rather than
additional Receivables. Prior to its first exercise of its right to substitute
monies or Permitted Investments for Receivables, the Transferor shall deliver to
the Trustee an opinion of counsel that such deposit and discharge of obligations
will not be treated for United States federal income tax purposes as a sale or
exchange by the holders of the Defeased Series and the Rating Agency Condition
shall have been satisfied. In addition, the Transferor must comply with certain
other requirements set forth in the Agreement, including requirements that the
Transferor deliver to the Trustee an opinion of counsel to the effect that the
deposit and termination of obligations will not require Trust I to register as
an "investment company" within the meaning of the Investment Company Act of
1940, as amended, and that the Transferor deliver to the Trustee and certain
Credit Enhancement Providers a certificate of an authorized officer stating
that, based on the facts known to such officer at the time, in the reasonable
opinion of the Transferor, such deposit and discharge of obligations will not at
the time of its occurrence cause a Pay-Out Event or an event that, after the
giving of notice or the lapse of time,
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would constitute a Pay-Out Event, to occur with respect to any Series issued by
Trust I. If the Transferor discharges its substantive obligations in respect of
a Defeased Series, any Enhancement for the affected Series might no longer be
available to make payments with respect thereto.
REQUIRED COLLATERAL INTEREST
The "Required Collateral Interest" with respect to any Transfer Date means
(i) initially $32,500,000 and (ii) thereafter on each Transfer Date an amount
equal to 6.5% of the sum of the Class A Adjusted Investor Interest and the Class
B Investor Interest on such Transfer Date, after taking into account deposits
into the Principal Funding Account on such Transfer Date and payments to be made
on the related Distribution Date, plus the Collateral Interest on the prior
Transfer Date after any adjustments made on such Transfer Date, but not less
than $15,000,000; provided, however, (1) that if certain reductions in the
Collateral Interest are made or if a Pay Out Event occurs, the Required
Collateral Interest for such Transfer Date shall equal the Required Collateral
Interest for the Transfer Date immediately preceding the occurrence of such
reduction or Pay Out Event, (2) in no event shall the Required Collateral
Interest exceed the unpaid principal amount of the Certificates as of the last
day of the Monthly Period preceding such Transfer Date after taking into account
payments to be made on the related Distribution Date and (3) the Required
Collateral Interest may be reduced to a lesser amount at any time if the Rating
Agency Condition is satisfied.
"Rating Agency Condition" means the notification in writing by each Rating
Agency that a proposed action will not result in such Rating Agency reducing or
withdrawing its then existing rating of the investor certificates of any
outstanding Series or class with respect to which it is a Rating Agency.
With respect to any Transfer Date, if the Collateral Interest is less than
the Required Collateral Interest, certain Excess Spread, if available, will be
allocated to increase the Collateral Interest to the extent of such shortfall.
Any of such Excess Spread not required to be so allocated or deposited into the
Reserve Account with respect to any Transfer Date will be applied in accordance
with the Loan Agreement or will be applied as Excess Finance Charge Collections.
See "-- Application of Collections -- Excess Spread."
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
On or before each Transfer Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (a) the Floating Investor
Percentage with respect to such Monthly Period (which shall be calculated on a
weighted average basis if a Reset Date occurred during that Monthly Period) and
(b) the aggregate amount of Receivables in Defaulted Accounts (the "Default
Amount") for such Monthly Period. A portion of the Investor Default Amount will
be allocated to the Class A Holders (the "Class A Investor Default Amount") on
each Transfer Date in an amount equal to the product of the Class A Floating
Allocation applicable during the related Monthly Period and the Investor Default
Amount for such Monthly Period. A portion of the Investor Default Amount will be
allocated to the Class B Holders (the "Class B Investor Default Amount") on each
Transfer Date in an amount equal to the product of the Class B Floating
Allocation applicable during the related Monthly Period and the Investor Default
Amount for such Monthly Period. A portion of the Investor Default Amount will be
allocated to the Collateral Interest Holder (the "Collateral Default Amount") on
each Transfer Date in an amount equal to the product of the Collateral Floating
Allocation applicable during the related Monthly Period and the Investor Default
Amount for such Monthly Period.
On each Transfer Date, if the Class A Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Principal
Collections available to fund such amount with respect to the Monthly Period
immediately preceding such Transfer Date, the Collateral Interest (after giving
effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date) will be reduced by the amount of
such excess, but not more than the lesser of the Class A Investor Default Amount
and the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and any Reallocated Principal Collections on such
Transfer Date) for such Transfer Date. In the event that such reduction would
cause the Collateral Interest to be a negative number, the Collateral Interest
will be reduced to zero, and the Class B Investor Interest (after giving effect
to reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections on such Transfer Date) will be reduced by the
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amount by which the Collateral Interest would have been reduced below zero. In
the event that such reduction would cause the Class B Investor Interest to be a
negative number, the Class B Investor Interest will be reduced to zero, and the
Class A Investor Interest will be reduced by the amount by which the Class B
Investor Interest would have been reduced below zero, but not more than the
Class A Investor Default Amount for such Transfer Date (a "Class A Investor
Charge-Off"), which will have the effect of slowing or reducing the return of
principal and interest to the Class A Holders. If the Class A Investor Interest
has been reduced by the amount of any Class A Investor Charge-Offs, it will be
reimbursed on any Transfer Date (but not by an amount in excess of the aggregate
Class A Investor Charge-Offs) by the amount of Excess Spread allocated and
available for such purpose as described under "-- Application of Collections --
Excess Spread."
On each Transfer Date, if the Class B Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Collateral
Principal Collections which are allocated and available to fund such amount with
respect to the Monthly Period preceding such Transfer Date, the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Principal Collections on such Transfer Date and after giving
effect to any adjustments with respect thereto as described in the preceding
paragraph) will be reduced by the amount of such excess but not more than the
lesser of the Class B Investor Default Amount and the Collateral Interest (after
giving effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date and after giving effect to any
adjustments with respect thereto as described in the preceding paragraph) for
such Transfer Date. In the event that such reduction would cause the Collateral
Interest to be a negative number, the Collateral Interest will be reduced to
zero and the Class B Investor Interest will be reduced by the amount by which
the Collateral Interest would have been reduced below zero, but not more than
the Class B Investor Default Amount for such Transfer Date (a "Class B Investor
Charge-Off"). The Class B Investor Interest will also be reduced by the amount
of Reallocated Class B Principal Collections in excess of the Collateral
Interest (after giving effect to reductions for any Collateral Charge-Offs and
any Reallocated Collateral Principal Collections on such Transfer Date) and the
amount of any portion of the Class B Investor Interest allocated to the Class A
Certificates to avoid a reduction in the Class A Investor Interest. The Class B
Investor Interest will thereafter be reimbursed (but not in excess of the unpaid
principal balance of the Class B Certificates) on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "-- Application of Collections -- Excess Spread."
On each Transfer Date, if the Collateral Default Amount for such Transfer
Date exceeds the amount of Excess Spread which is allocated and available to
fund such amount as described under "-- Application of Collections -- Excess
Spread," the Collateral Interest will be reduced by the amount of such excess
but not more than the lesser of the Collateral Default Amount and the Collateral
Interest for such Transfer Date (a "Collateral Charge-Off"). The Collateral
Interest will also be reduced by the amount of Reallocated Principal Collections
and the amount of any portion of the Collateral Interest allocated to the Class
A Certificates to avoid a reduction in the Class A Investor Interest or to the
Class B Certificates to avoid a reduction in the Class B Investor Interest. The
Collateral Interest will thereafter be reimbursed on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "-- Application of Collections -- Excess Spread."
PRINCIPAL FUNDING ACCOUNT
Pursuant to the Series 1996-A Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Holders (the "Principal Funding Account"). During the Controlled
Accumulation Period, the Trustee at the direction of the Servicer will transfer
collections in respect of Principal Receivables (other than Reallocated
Principal Collections) and Shared Principal Collections from other Series in
Group One, if any, allocated to Series 1996-A from the Principal Account to the
Principal Funding Account as described under "-- Application of Collections."
Funds on deposit in the Principal Funding Account will be invested to the
following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment
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losses and expenses) on funds on deposit in the Principal Funding Account (the
"Principal Funding Investment Proceeds") will be used to pay interest on the
Class A Certificates in an amount up to, for each Transfer Date, the product of
(a) one-twelfth, (b) the Class A Rate in effect with respect to the related
Interest Period and (c) the Principal Funding Account Balance as of the Record
Date preceding such Transfer Date (the "Class A Covered Amount"). If, for any
Transfer Date, the Principal Funding Investment Proceeds are less than the Class
A Covered Amount, the amount of such deficiency (the "Class A Principal Funding
Investment Shortfall") shall be withdrawn, to the extent available, from the
Reserve Account and deposited in the Finance Charge Account and included in
collections of Finance Charge Receivables to be applied to the payment of Class
A Monthly Interest.
RESERVE ACCOUNT
Pursuant to the Series 1996-A Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Holders (the "Reserve Account"). The Reserve Account is
established to assist with the subsequent distribution of interest on the
Certificates during the Controlled Accumulation Period. On each Transfer Date
from and after the Reserve Account Funding Date, but prior to the termination of
the Reserve Account, the Trustee, acting pursuant to the Servicer's
instructions, will apply Excess Spread allocated to the Certificates (to the
extent described above under "-- Application of Collections -- Excess Spread")
to increase the amount on deposit in the Reserve Account (to the extent such
amount is less than the Required Reserve Account Amount). The "Reserve Account
Funding Date" will be the Transfer Date with respect to the Monthly Period which
commences no later than three months prior to the commencement of the Controlled
Accumulation Period, or such earlier date as the Agreement may require. The
"Required Reserve Account Amount" for any Transfer Date on or after the Reserve
Account Funding Date will be equal to (a) 1% of the outstanding principal
balance of the Class A Certificates or (b) any other amount designated by the
Transferor; provided, that if such designation is of a lesser amount, the
Transferor shall have provided the Servicer, the Collateral Interest Holder and
the Trustee with evidence that the Rating Agency Condition has been satisfied
and the Transferor shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at such time, in the reasonable belief of the Transferor, such designation 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 with respect to Series
1996-A. On each Transfer Date, after giving effect to any deposit to be made to,
and any withdrawal to be made from, the Reserve Account on such Transfer Date,
the Trustee will withdraw from the Reserve Account an amount equal to the
excess, if any, of the amount on deposit in the Reserve Account over the
Required Reserve Account Amount and distribute such excess to the Collateral
Interest Holder for application in accordance with the terms of the Loan
Agreement.
Provided that the Reserve Account has not terminated as described below, all
amounts on deposit in the Reserve Account on any Transfer Date (after giving
effect to any deposits to, or withdrawals from, the Reserve Account to be made
on such Transfer Date) will be invested to the following Transfer Date by the
Trustee at the direction of the Servicer in Permitted Investments. The interest
and other investment income (net of investment expenses and losses) earned on
such investments will be retained in the Reserve Account (to the extent the
amount on deposit is less than the Required Reserve Account Amount) or deposited
in the Finance Charge Account and treated as Class A Available Funds.
On or before each Transfer Date with respect to the Controlled Accumulation
Period and on the first Transfer Date with respect to the Rapid Amortization
Period, a withdrawal will be made from the Reserve Account, and the amount of
such withdrawal will be deposited in the Finance Charge Account and included in
collections of Finance Charge Receivables to be applied to the payment of the
Class A Monthly Interest for such Transfer Date in an amount equal to the lesser
of (a) the Available Reserve Account Amount with respect to such Transfer Date
and (b) the Class A Principal Funding Investment Shortfall with respect to such
Transfer Date; provided, that the amount of such withdrawal shall be reduced to
the extent that funds otherwise would be available to be deposited in the
Reserve Account on such Transfer Date. On each Transfer Date, the amount
available to be withdrawn from the Reserve Account (the "Available Reserve
S-43
Account Amount") will be equal to the lesser of the amount on deposit in the
Reserve Account (before giving effect to any deposit to be made to the Reserve
Account on such Transfer Date) and the Required Reserve Account Amount for such
Transfer Date.
The Reserve Account will be terminated upon the earlier to occur of (a) the
termination of Trust I pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (i) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled Payment Date. Upon the termination of the Reserve Account,
all amounts on deposit therein (after giving effect to any withdrawal from the
Reserve Account on such date as described above) will be distributed to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement. Any amounts withdrawn from the Reserve Account and distributed
to the Collateral Interest Holder as described above will not be available for
distribution to the Holders.
PAIRED SERIES
Series 1996-A may be paired with one or more other Series (each a "Paired
Series"). Each Paired Series either will be prefunded with an initial deposit to
a Pre-Funding Account in an amount up to the initial principal balance of such
Paired Series and primarily from the proceeds of the sale of such Paired Series
or will be a Variable Interest. Any such Pre-Funding Account will be held for
the benefit of such Paired Series and not for the benefit of the Holders. As
principal is deposited into the Principal Funding Account with respect to the
Certificates, either (i) in the case of a prefunded Paired Series, an equal
amount of funds on deposit in the Pre-Funding Account for such prefunded Paired
Series will be released (which funds will be distributed to the Transferor) or
(ii) in the case of a Paired Series which is a Variable Interest, an interest in
such variable Paired Series in an equal or lesser amount may be sold by Trust I
(and the proceeds thereof will be distributed to the Transferor) and, in either
case, the investor interest of such Paired Series will increase by up to a
corresponding amount. Upon payment in full of the Certificates, assuming that
there have been no unreimbursed charge-offs with respect to any related Paired
Series, the aggregate investor interest of such related Paired Series will have
been increased by an amount up to an aggregate amount equal to the payments of
principal of the Certificates since the issuance of such Paired Series. The
issuance of a Paired Series will be subject to the conditions described under
"Description of the Certificates -- Exchanges" in the Prospectus. There can be
no assurance, however, that the terms of any Paired Series might not have an
impact on the timing or amount of payments received by a Holder. In particular,
the denominator of the Fixed Allocation Percentage may be reduced upon the
occurrence of a Pay Out Event with respect to a Paired Series resulting in a
possible reduction of the percentage of collections of Principal Receivables
allocated to the Holders and possible delays in payments to the Holders. See
"Maturity Assumptions" herein.
PAY OUT EVENTS
As described above, the Revolving Period will continue through March 31,
2000 (unless such date is postponed as described under "-- Postponement of
Controlled Accumulation Period"), unless a Pay Out Event occurs prior to such
date. A "Pay Out Event" refers to any of the following events:
(a) failure on the part of the Transferor (i) to make any payment or
deposit on the date required under the Agreement (or within the applicable
grace period which shall not exceed five days) or (ii) to observe or perform
in any material respect any other covenants or agreements of the Transferor
set forth in the Agreement, which failure has a material adverse effect on
the Holders (which determination shall be made without regard to the
existence of the Collateral Interest) and which continues for a period of 60
days after written notice and continues to materially and adversely affect
the interests of the Holders (which determination shall be made without
regard to the existence of the Collateral Interest) for such period;
(b) any representation or warranty made by the Transferor in the
Agreement, or any information required to be given by the Transferor to the
Trustee to identify the Accounts proves to have been incorrect in any
material respect when made and which continues to be incorrect in any
material respect
S-44
for a period of 60 days after written notice and as a result of which the
interests of the Holders are materially and adversely affected (which
determination shall be made without regard to the existence of the
Collateral Interest) and continue to be materially and adversely affected
for such period; provided, however, that a Pay Out Event pursuant to this
subparagraph (b) shall not be deemed to occur thereunder if the Transferor
has accepted reassignment of the related Receivable or all such Receivables,
if applicable, during such period (or such longer period as the Trustee may
specify) in accordance with the provisions of the Agreement;
(c) any reduction of the average of the Portfolio Yields for any three
consecutive Monthly Periods to a rate which is less than the average of the
Base Rates for such period;
(d) a failure by the Transferor to convey Receivables arising under
Additional Accounts, or Participations, to Trust I when required by the
Agreement;
(e) any Servicer Default occurs which would have a material adverse
effect on the Holders;
(f) insufficient moneys in the Distribution Account to pay the Class A
Investor Interest on the Class A Scheduled Payment Date or the Class B
Investor Interest on the Class B Scheduled Payment Date;
(g) certain events of insolvency, conservatorship or receivership
relating to the Transferor;
(h) the Transferor becomes unable for any reason to transfer Receivables
to Trust I in accordance with the provisions of the Agreement; or
(i) Trust I becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In the case of any event described in clause (a), (b) or (e) above, a Pay
Out Event will be deemed to have occurred with respect to the Certificates only
if, after any applicable grace period, either the Trustee or Holders and the
Collateral Interest Holder evidencing undivided interests aggregating more than
50% of the Investor Interest, by written notice to the Transferor and the
Servicer (and to the Trustee if given by the Holders) declare that a Pay Out
Event has occurred with respect to the Certificates as of the date of such
notice. In the case of any event described in clause (g), (h) or (i), a Pay Out
Event with respect to all Series then outstanding, and in the case of any event
described in clause (c), (d) or (f), a Pay Out Event with respect to only the
Certificates, will be deemed to have occurred without any notice or other action
on the part of the Trustee or the Holders, the Collateral Interest Holder or all
certificateholders, as appropriate, immediately upon the occurrence of such
event. On the date on which a Pay Out Event is deemed to have occurred, the
Rapid Amortization Period will commence. In such event, distributions of
principal to the Holders will begin on the first Distribution Date following the
month in which such Pay Out Event occurred. If, because of the occurrence of a
Pay Out Event, the Rapid Amortization Period begins earlier than March 31, 2000,
the scheduled commencement of the Controlled Accumulation Period, Holders will
be receiving distributions of principal earlier than they otherwise would have,
which may shorten the average life of the Certificates.
See "Description of the Certificates -- Pay Out Events" in the Prospectus
for an additional discussion of the consequences of an insolvency,
conservatorship or receivership of the Transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicing Fee allocable to the Investor Interest with
respect to any Transfer Date (the "Monthly Investor Servicing Fee") shall, for
purposes of calculating the Base Rate, be equal to one-twelfth of the product of
(a) 2.00% and (b) the Adjusted Investor Interest as of the last day of the
Monthly Period preceding such Transfer Date; provided, however, with respect to
the first Transfer Date, the Monthly Investor Servicing Fee shall be equal to
$791,666.67 (or for purposes of calculating the Base Rate shall be
$1,055,555.56). The Monthly Investor Servicing Fee shall be paid from the
sources and to the extent set forth below. On each Transfer Date, but only if
First Omni or the Trustee is the Servicer, Servicer Interchange with respect to
the related Monthly Period that is on deposit in the Finance Charge Account will
be withdrawn
S-45
from the Finance Charge Account and paid to the Servicer in payment of a portion
of the Monthly Investor Servicing Fee with respect to such Monthly Period. The
"Servicer Interchange" for any Monthly Period for which First Omni is the
Servicer will be an amount equal to the portion of collections of Finance Charge
Receivables allocated to the Investor Interest with respect to such Monthly
Period that is attributable to Interchange, provided, however, that Servicer
Interchange for a Monthly Period shall not exceed one-twelfth of the product of
(i) the Adjusted Investor Interest, as of the last day of such Monthly Period
and (ii) 1.0% (or, in the case of the first Monthly Period $527,777.78). In the
case of any insufficiency of Servicer Interchange on deposit in the Finance
Charge Account, a portion of the Monthly Investor Servicing Fee with respect to
such Monthly Period will not be paid to the extent of such insufficiency and in
no event shall Trust I, the Trustee, the Holders or the Collateral Interest
Holder be liable for the share of the Servicing Fee to be paid out of Servicer
Interchange.
The share of the Monthly Investor Servicing Fee allocable to the Class A
Holders (the "Class A Servicing Fee"), the Class B Holders (the "Class B
Servicing Fee") and the Collateral Interest Holder (the "Collateral Interest
Servicing Fee") with respect to any Transfer Date shall be equal to one-twelfth
of the product of (a) the Class A Floating Allocation, the Class B Floating
Allocation or the Collateral Floating Allocation, respectively, (b) the Net
Servicing Fee Rate and (c) the Adjusted Investor Interest as of the last day of
the Monthly Period preceding such Transfer Date. The "Net Servicing Fee Rate"
shall mean (a) so long as First Omni is the Servicer, 0.50% per annum, (b) so
long as the Trustee is the Servicer, 1.00% per annum, and (c) so long as a
Person other than First Omni or the Trustee is the Servicer, 2.00% per annum.
The remainder of the Servicing Fee shall be paid by the holder of the Transferor
Certificate or other Series (as provided in the related Series Supplements) or,
to the extent of any insufficiency of Servicer Interchange as described above,
not be paid. In no event shall Trust I, the Trustee, the Holders or the
Collateral Interest Holder be liable for the share of the Servicing Fee to be
paid out of Servicer Interchange. The Class A Servicing Fee and the Class B
Servicing Fee shall be payable to the Servicer solely to the extent amounts are
available for distribution in respect thereof as described under "-- Application
of Collections."
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 Trustee and independent
certified public accountants and other fees which are not expressly stated in
the Agreement to be payable by Trust I or the Holders other than federal, state
and local income and franchise taxes, if any, of Trust I.
REPORTS TO HOLDERS
On each Transfer Date, the Trustee will forward to each Holder of record, a
statement prepared by the Servicer setting forth the items described in
"Description of the Certificates -- Reports to Holders" in the Prospectus. In
addition, such statement will include (a) the amount, if any, withdrawn from the
Principal Funding Account for such Transfer Date, and (b) the Collateral
Interest, if any, for such Transfer Date.
S-46
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Transferor and the Underwriters named
below (the "Underwriters"), the Transferor has agreed to sell to the
Underwriters, and each of the Underwriters has severally agreed to purchase, the
principal amount of the Class A Certificates set forth opposite its name:
PRINCIPAL AMOUNT
OF CLASS A
UNDERWRITERS CERTIFICATES
- -------------------------------------------------------------------------------------- ----------------
CS First Boston Corporation........................................................... $ 147,500,000
Bear, Stearns & Co. Inc............................................................... $ 147,500,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................................ $ 147,500,000
----------------
Total............................................................................. $ 442,500,000
----------------
----------------
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Class A
Certificates offered hereby if any of the Class A Certificates are purchased.
The Underwriters have agreed to reimburse the Transferor for certain expenses of
the issuance and distribution of the Class A Certificates.
The Underwriters propose initially to offer the Class A Certificates to the
public at the price set forth on the cover page hereof and to certain dealers at
such price less concessions not in excess of 0.180% of the principal amount of
the Class A Certificates. The Underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.125% of the principal amount of the
Class A Certificates to certain brokers and dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Underwriters.
Each Underwriter has represented and agreed that (a) it has not offered or
sold, and, prior to the expiry of the period of six months from the Closing
Date, will not offer or sell any Class A Certificates 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 do not
constitute an offer to the public in the United Kingdom for the purposes of the
Public Offers of Securities Regulations 1995, (b) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 of the
United Kingdom with respect to anything done by it in relation to the Class A
Certificates in, from or otherwise involving the United Kingdom and (c) it has
only issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Class A
Certificates to a Person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
of or is a Person to whom the document may otherwise lawfully be issued or
passed on.
The Transferor will indemnify the Underwriters against liabilities relating
to the adequacy of disclosure to investors, including liabilities under the
Securities Act, or contribute to payments the Underwriters may be required to
make in respect thereof.
The closing of the sale of each Class of Certificates is conditioned upon
the closing of the sale of the other Class.
S-47
INDEX OF DEFINED TERMS FOR PROSPECTUS SUPPLEMENT
PAGE
------------------
Accounts.......................... S-1, S-3
Accumulation Period Length........ S-31
Additional Interest............... S-29
Adjusted Investor Interest........ S-6
Agreement......................... S-3
AIB............................... S-27
Automatic Additional Accounts..... S-20
Available Investor Principal
Collections...................... S-30
Available Reserve Account
Amount........................... S-43
Bank.............................. S-3
Bank Portfolio.................... S-3
Base Rate......................... S-25
Certificates...................... S-1, S-3
Class A Additional Interest....... S-29
Class A Adjusted Investor
Interest......................... S-6, S-33
Class A Available Funds........... S-29
Class A Certificates.............. S-1, S-3
Class A Covered Amount............ S-10, S-43
Class A Fixed Allocation.......... S-32
Class A Floating Allocation....... S-32
Class A Holders................... S-3
Class A Investor Charge-Off....... S-13, S-42
Class A Investor Default Amount... S-41
Class A Investor Interest......... S-4, S-33
Class A Monthly Interest.......... S-36
Class A Monthly Principal......... S-39
Class A Principal Funding
Investment Shortfall............. S-10, S-43
Class A Rate...................... S-2, S-5, S-29
Class A Required Amount........... S-12, S-34
Class A Scheduled Payment Date.... S-2
Class A Servicing Fee............. S-46
Class B Additional Interest....... S-29
Class B Available Funds........... S-29
Class B Certificates.............. S-1, S-3
Class B Fixed Allocation.......... S-32
Class B Floating Allocation....... S-32
Class B Holders................... S-3
Class B Investor Charge-Off....... S-14, S-42
Class B Investor Default Amount... S-41
Class B Investor Interest......... S-4, S-33
Class B Monthly Interest.......... S-36
Class B Monthly Principal......... S-39
PAGE
------------------
Class B Rate...................... S-5, S-29
Class B Required Amount........... S-12, S-34
Class B Scheduled Payment Date.... S-5
Class B Servicing Fee............. S-46
Closing Date...................... S-2, S-5
Code.............................. S-17
Collateral Available Funds........ S-37
Collateral Charge-Off............. S-42
Collateral Default Amount......... S-41
Collateral Fixed Allocation....... S-33
Collateral Floating Allocation.... S-32
Collateral Interest............... S-4, S-33
Collateral Interest Holder........ S-4
Collateral Interest Servicing
Fee.............................. S-46
Collateral Monthly Interest....... S-38
Collateral Monthly Principal...... S-39
Collateral Rate................... S-38
Commission........................ S-1
Controlled Accumulation Amount.... S-39
Controlled Accumulation Period.... S-9
Controlled Deposit Amount......... S-9, S-24
Corporation....................... S-27
Cut-Off Date...................... S-4
Default Amount.................... S-41
Defeased Series................... S-40
Distribution Date................. S-2, S-8
ERISA............................. S-17
Excess Finance Charge
Collections...................... S-38
Excess Spread..................... S-12, S-37
First Omni........................ S-1, S-3
Fitch............................. S-35
Fixed Investor Percentage......... S-32
Floating Investor Percentage...... S-31
Holders........................... S-3
Identified Portfolio.............. S-4
Initial Collateral Interest....... S-14
Interest Period................... S-8
Investor Default Amount........... S-41
Investor Interest................. S-4
LIBOR............................. S-5, S-29
LIBOR Determination Date.......... S-29
Loan Agreement.................... S-14
Minimum Aggregate Principal
Receivables...................... S-20
Minimum Transferor Interest....... S-20
S-48
PAGE
------------------
Monthly Investor Servicing Fee.... S-45
Monthly Period.................... S-6
Net Servicing Fee Rate............ S-46
Paired Series..................... S-15, S-44
Pay Out Event..................... S-44
Portfolio Yield................... S-25
Principal Funding Account......... S-9, S-24, S-42
Principal Funding Account
Balance.......................... S-24
Principal Funding Investment
Proceeds......................... S-10, S-43
Principal Shortfalls.............. S-40
Rapid Amortization Period......... S-11
Rating Agency Condition........... S-41
Reallocated Class B Principal
Collections...................... S-35
Reallocated Collateral Principal
Collections...................... S-35
Reallocated Principal
Collections...................... S-35
Receivables....................... S-1, S-3
Record Date....................... S-28
Required Amount................... S-12
Required Collateral Interest...... S-14, S-41
PAGE
------------------
Required Reserve Account Amount... S-43
Reserve Account................... S-43
Reserve Account Funding Date...... S-43
Reset Date........................ S-33
Revolving Period.................. S-9
Series 1996-A Supplement.......... S-3
Series 1996-A Termination Date.... S-7
Servicer Interchange.............. S-46
Shared Principal Collections...... S-15, S-40
Supplemental Accounts............. S-20
Telerate Page 3750................ S-29
Transfer Date..................... S-35
Transferor........................ S-3
Transferor Certificate............ S-6
Transferor Interest............... S-4
Transferor Percentage............. S-28
Trust I........................... S-1, S-3
Trust I Portfolio................. S-20
Trustee........................... S-3
Underwriters...................... S-47
Underwriting Agreement............ S-47
Variable Interest................. S-34
S-49
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRANSFEROR OR ANY AGENT OR UNDERWRITER. NEITHER
THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER
OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS, NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE TRANSFEROR OR THE RECEIVABLES OR THE ACCOUNTS SINCE THE DATE
HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
-----
Summary of Terms............................... S-3
First Omni's Credit Card Portfolio............. S-18
The Receivables................................ S-20
Maturity Assumptions........................... S-24
Receivable Yield Considerations................ S-26
First Omni Bank, N.A. and First Maryland
Bancorp....................................... S-27
Description of the Certificates................ S-27
Underwriting................................... S-47
Index of Defined Terms for Prospectus
Supplement.................................... S-48
PROSPECTUS
Prospectus Supplement.......................... 2
Reports to Certificateholders.................. 2
Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary............................. 3
Risk Factors................................... 22
The Trusts..................................... 29
First Omni's Credit Card Activities............ 29
The Receivables................................ 31
Maturity Assumptions........................... 31
Use of Proceeds................................ 32
First Omni Bank, N.A. and First Maryland
Bancorp....................................... 32
Description of the Certificates................ 32
Credit Enhancement............................. 55
Certain Legal Aspects of the Receivables....... 57
U.S. Federal Income Tax Consequences........... 60
State and Local Taxation....................... 64
ERISA Considerations........................... 64
Plan of Distribution........................... 66
Legal Matters.................................. 67
Index of Terms for Prospectus.................. i
Annex 1: Global Clearance, Settlement and Tax
Documentation Procedures...................... A-1
UNTIL JULY 9, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT
AND A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$442,500,000
FIRST OMNI BANK
CREDIT CARD MASTER TRUST
CLASS A 6.65%
ASSET BACKED
CERTIFICATES, SERIES 1996-A
FIRST OMNI BANK, N.A.
TRANSFEROR AND SERVICER
P R O S P E C T U S
S U P P L E M E N T
CS First Boston
Bear, Stearns & Co. Inc.
Merrill Lynch & Co.
- -------------------------------------------
-------------------------------------------
PROSPECTUS
FIRST OMNI BANK CREDIT CARD MASTER TRUSTS
Asset Backed Certificates
FIRST OMNI BANK, N.A.
Transferor and Servicer
--------------------------
THE ASSET BACKED CERTIFICATES (COLLECTIVELY, THE "CERTIFICATES") DESCRIBED
HEREIN MAY BE SOLD FROM TIME TO TIME IN ONE OR MORE SERIES (EACH, A "SERIES"),
IN AMOUNTS, AT PRICES AND ON TERMS TO BE DETERMINED AT THE TIME OF SALE AND TO
BE SET FORTH IN A SUPPLEMENT TO THIS PROSPECTUS (A "PROSPECTUS SUPPLEMENT"). THE
CERTIFICATES IN EACH SERIES WILL REPRESENT AN UNDIVIDED INTEREST IN A SPECIFIED
FIRST OMNI BANK CREDIT CARD MASTER TRUST (EACH, A "TRUST"). THERE MAY EXIST MORE
THAN ONE FIRST OMNI BANK CREDIT CARD MASTER TRUST AT ANY TIME, ALTHOUGH ANY
PARTICULAR SERIES WILL REPRESENT AN INTEREST IN ONLY ONE SUCH TRUST. A TRUST
WILL BE FORMED PURSUANT TO A POOLING AND SERVICING AGREEMENT BETWEEN FIRST OMNI
BANK, N.A. ("FIRST OMNI" OR THE "BANK"), AS TRANSFEROR AND SERVICER, AND A
TRUSTEE TO BE IDENTIFIED IN THE PROSPECTUS SUPPLEMENT. ADDITIONAL TRUSTS MAY BE
FORMED FROM TIME TO TIME, EACH PURSUANT TO A POOLING AND SERVICING AGREEMENT TO
BE ENTERED INTO BETWEEN THE BANK, AS TRANSFEROR AND SERVICER, AND A TRUSTEE
IDENTIFIED IN THE PROSPECTUS SUPPLEMENT RELATING TO THE SERIES OF CERTIFICATES
REPRESENTING INTERESTS IN THAT TRUST. CERTAIN CAPITALIZED TERMS USED IN THIS
PROSPECTUS ARE DEFINED ELSEWHERE IN THIS PROSPECTUS AND IN THE ACCOMPANYING
PROSPECTUS SUPPLEMENT. PLEASE REFER TO THE "INDEX OF DEFINED TERMS FOR
PROSPECTUS" FOR A LISTING OF THE PAGES ON WHICH SOME OF SUCH TERMS ARE DEFINED.
THE PROPERTY OF EACH TRUST WILL INCLUDE RECEIVABLES (THE "RECEIVABLES")
GENERATED FROM TIME TO TIME IN A PORTFOLIO OF CONSUMER REVOLVING CREDIT CARD
ACCOUNTS (THE "ACCOUNTS"), ALL MONIES DUE OR TO BECOME DUE IN PAYMENT OF THE
RECEIVABLES, ALL PROCEEDS OF THE RECEIVABLES AND PROCEEDS OF CREDIT INSURANCE
POLICIES RELATING TO THE RECEIVABLES AND ALL MONIES ON DEPOSIT IN CERTAIN BANK
ACCOUNTS OF SUCH TRUST, AS MORE FULLY DESCRIBED HEREIN. ADDITIONALLY, WITH
RESPECT TO ANY SERIES OR CLASS OFFERED HEREBY, THE RELATED TRUST ASSETS ALSO MAY
INCLUDE (I) THE RIGHT TO RECEIVE INTERCHANGE AND/OR (II) CREDIT ENHANCEMENT AND
INTEREST RATE PROTECTION ARRANGEMENTS FOR SUCH SERIES OR CLASS, AS DESCRIBED IN
THE RELATED PROSPECTUS SUPPLEMENT. THE BANK INITIALLY WILL OWN THE REMAINING
UNDIVIDED INTEREST IN EACH TRUST NOT REPRESENTED BY THE CERTIFICATES ISSUED BY
THAT TRUST AND WILL SERVICE THE RELATED RECEIVABLES.
EACH SERIES WILL CONSIST OF ONE OR MORE CLASSES OF CERTIFICATES (EACH, A
"CLASS"), ONE OR MORE OF WHICH MAY BE FIXED RATE CERTIFICATES, FLOATING RATE
CERTIFICATES OR OTHER TYPES OF CERTIFICATES, AS SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT. EACH CERTIFICATE WILL REPRESENT AN UNDIVIDED INTEREST IN
THE RELATED TRUST, AND THE INTEREST OF THE HOLDERS OF EACH CLASS OR SERIES OF
CERTIFICATES WILL INCLUDE THE RIGHT TO RECEIVE A VARYING PERCENTAGE OF EACH
MONTH'S COLLECTIONS WITH RESPECT TO THE RECEIVABLES OF THAT TRUST AT THE TIMES,
IN THE MANNER AND TO THE EXTENT DESCRIBED HEREIN AND, WITH RESPECT TO ANY SERIES
OFFERED HEREBY, IN THE RELATED PROSPECTUS SUPPLEMENT. INTEREST AND PRINCIPAL
PAYMENTS WITH RESPECT TO EACH SERIES OFFERED HEREBY WILL BE MADE AS SPECIFIED IN
THE RELATED PROSPECTUS SUPPLEMENT. ONE OR MORE CLASSES OF A SERIES OFFERED
HEREBY MAY BE ENTITLED TO THE BENEFITS OF A CASH COLLATERAL ACCOUNT OR GUARANTY,
A COLLATERAL INTEREST, A LETTER OF CREDIT, A SURETY BOND, AN INSURANCE POLICY OR
OTHER FORM OF ENHANCEMENT AS SPECIFIED IN THE PROSPECTUS SUPPLEMENT RELATING TO
THAT SERIES. IN ADDITION, ANY SERIES OFFERED HEREBY MAY INCLUDE ONE OR MORE
CLASSES WHICH ARE SUBORDINATED IN RIGHT AND PRIORITY TO PAYMENT OF PRINCIPAL OF,
AND/OR INTEREST ON, ONE OR MORE OTHER CLASSES OF THAT SERIES OR ANOTHER SERIES,
IN EACH CASE TO THE EXTENT DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. EACH
SERIES OF CERTIFICATES OR CLASS OFFERED HEREBY WILL BE RATED IN ONE OF THE FOUR
HIGHEST RATING CATEGORIES BY AT LEAST ONE NATIONALLY RECOGNIZED RATING
ORGANIZATION.
WHILE THE SPECIFIC TERMS OF ANY SERIES IN RESPECT OF WHICH THIS PROSPECTUS
IS BEING DELIVERED WILL BE DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT, THE
TERMS OF SUCH SERIES WILL NOT BE SUBJECT TO PRIOR REVIEW BY, OR CONSENT OF, THE
CERTIFICATEHOLDERS OF ANY PREVIOUSLY ISSUED SERIES.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" COMMENCING ON PAGE 22 OF THIS PROSPECTUS.
---------------------
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE RELATED TRUSTS ONLY AND WILL
NOT REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF FIRST OMNI OR ANY
AFFILIATE THEREOF. A CERTIFICATE IS NOT A DEPOSIT, AND NEITHER THE
CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL
OFFENSE.
--------------------------
CERTIFICATES MAY BE SOLD BY THE BANK OR A TRUST DIRECTLY TO PURCHASERS,
THROUGH AGENTS DESIGNATED FROM TIME TO TIME, THROUGH UNDERWRITING SYNDICATES LED
BY ONE OR MORE MANAGING UNDERWRITERS OR THROUGH ONE OR MORE UNDERWRITERS ACTING
ALONE. IF UNDERWRITERS OR AGENTS ARE INVOLVED IN THE OFFERING OF THE
CERTIFICATES OF ANY SERIES OFFERED HEREBY, THE NAME OF THE MANAGING UNDERWRITER
OR UNDERWRITERS OR AGENTS WILL BE SET FORTH IN THE RELATED PROSPECTUS
SUPPLEMENT. IF AN UNDERWRITER, AGENT OR DEALER IS INVOLVED IN THE OFFERING OF
THE CERTIFICATES OF ANY SERIES OFFERED HEREBY, THE UNDERWRITER'S DISCOUNT,
AGENT'S COMMISSION OR DEALER'S PURCHASE PRICE WILL BE SET FORTH IN, OR MAY BE
CALCULATED FROM, THE RELATED PROSPECTUS SUPPLEMENT, AND THE NET PROCEEDS TO THE
BANK FROM SUCH OFFERING WILL BE THE PUBLIC OFFERING PRICE OF SUCH CERTIFICATES
LESS SUCH DISCOUNT IN THE CASE OF AN UNDERWRITER, THE PURCHASE PRICE OF SUCH
CERTIFICATES LESS SUCH COMMISSION IN THE CASE OF AN AGENT OR THE PURCHASE PRICE
OF SUCH CERTIFICATES IN THE CASE OF A DEALER, AND LESS, IN EACH CASE, THE OTHER
EXPENSES OF THE BANK ASSOCIATED WITH THE ISSUANCE AND DISTRIBUTION OF SUCH
CERTIFICATES. SEE "PLAN OF DISTRIBUTION."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF ANY SERIES OF
CERTIFICATES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
--------------------------
The date of this Prospectus is April 5, 1996.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series to be offered thereby and
hereby will, among other things, set forth with respect to that Series: (a) the
initial aggregate principal amount of each Class of that Series; (b) the
certificate interest rate (or method for determining it) of each Class of that
Series; (c) certain information concerning the Receivables allocated to that
Series; (d) the expected date or dates on which the principal amount of the
Certificates will be paid to holders of each Class of Certificates (the
"Certificateholders"); (e) the extent to which any Class within a Series is
subordinated to any other Class of that Series or any other Series; (f) the
identity of each Class of floating rate Certificates and fixed rate Certificates
included in that Series, if any, or such other type of Class of Certificates;
(g) the Distribution Dates for the respective Classes; (h) relevant financial
information with respect to the Receivables; (i) additional information with
respect to any Enhancement relating to that Series; and (j) the plan of
distribution of that Series.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
reports, containing information concerning each Trust and prepared by the
Servicer, will be sent on behalf of that Trust to the registered holder(s) of
the related Certificates. Cede & Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC") is generally expected to be the only registered holder of
the Certificates. The availability of copies of such reports to DTC participants
and ultimately to the owners of beneficial interests in the Certificates
("Certificate Owners") will be governed by arrangements among DTC and such
parties, subject to any statutory or regulatory requirements as may be in effect
from time to time. See "Description of the Certificates -- Book-Entry
Registration," "-- Reports to Certificateholders" and "-- Evidence as to
Compliance." Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Transferor does
not intend to send any of its financial reports to Certificateholders or to the
Certificate Owners. The Servicer will file with the Securities and Exchange
Commission (the "Commission") such periodic reports with respect to each Trust
as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
AVAILABLE INFORMATION
This Prospectus, which forms a part of the Registration Statement, omits
certain information contained in such Registration Statement pursuant to the
rules and regulations of the Commission. For further information, reference is
made to the Registration Statement (including any amendments thereof and
exhibits thereto) and any reports and other documents incorporated herein by
reference as described below under "Incorporation of Certain Documents by
Reference," which are available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 7 World Trade Center, New York, New York 10048; and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of each
Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates shall be deemed to be incorporated by reference
into this Prospectus and to be part hereof. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Servicer will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to: James A. Smith, Director of Investor Relations, First Maryland
Bancorp, 25 South Charles Street, MS 101-920, Baltimore, Maryland 21201,
telephone number (410) 244-2100.
2
PROSPECTUS SUMMARY
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE ACCOMPANYING
PROSPECTUS SUPPLEMENT. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE
DEFINED ELSEWHERE IN THIS PROSPECTUS AND IN THE ACCOMPANYING PROSPECTUS
SUPPLEMENT. A LISTING OF THE PAGES ON WHICH SOME OF SUCH TERMS ARE DEFINED IS
FOUND IN THE "INDEX OF DEFINED TERMS FOR PROSPECTUS." UNLESS THE CONTEXT
REQUIRES OTHERWISE, CAPITALIZED TERMS USED IN THIS PROSPECTUS AND IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT REFER ONLY TO THE PARTICULAR SERIES BEING
OFFERED BY THAT PROSPECTUS SUPPLEMENT.
TYPE OF SECURITIES................ Asset Backed Certificates (the "Certificates")
evidencing an undivided interest in the assets of a
First Omni Bank Credit Card Master Trust (each, a
"Trust") may be issued from time to time in one or
more series (each, a "Series") which will consist of
one or more classes of Certificates (each, a "Class").
TRUSTS............................ A Trust ("Trust I") will be formed pursuant to a pooling
and servicing agreement (the "Agreement") between First
Omni Bank, N.A. ("First Omni" or the "Bank"), as
transferor and servicer, and a trustee to be
identified in the initial Prospectus Supplement.
Additional Trusts (each such Trust, a "New Trust") may
be formed from time to time, each pursuant to a
pooling and servicing agreement (each such agreement,
a "New Agreement," and each New Agreement and the
Agreement, an "Agreement") to be entered into between
the Bank, as transferor and servicer, and a trustee to
be identified in the Prospectus Supplement relating to
each Series of Certificates representing interests in
such Trust (each trustee under an Agreement, a
"Trustee"). Each Trust will be created as a master
trust under which one or more Series will be issued
pursuant to a series supplement to the related
Agreement (a "Series Supplement"; references in this
Prospectus to an Agreement, as it relates to any
Series, shall include the Series Supplement entered
into in connection with such Series). Any Series
issued by a Trust may or may not be a Series offered
pursuant to this Prospectus. Each Prospectus
Supplement will identify the related Trust and all
Series previously issued by that Trust. Certificate
Owners with respect to any Series issued by a Trust
are not required to be notified of the issuance of any
subsequent Series issued by such Trust or of the
creation or issuance of any Series by any other Trust.
However, it is a condition precedent to the issuance
of any additional Series by a particular Trust that
each Rating Agency that has rated any outstanding
Series issued by that Trust deliver written confir-
mation to the Trustee that such issuance will not
result in such Rating Agency reducing or withdrawing
its rating on any such outstanding Series.
TRUST ASSETS...................... The assets of Trust I and each New Trust will include
receivables (the "Receivables") arising under certain
MasterCard-Registered Trademark- and
VISA-Registered Trademark-* revolving credit card
accounts (the "Accounts")
- ------------------------
* MasterCard-Registered Trademark- and Visa-Registered Trademark- are federally
registered servicemarks of MasterCard International Inc. and Visa U.S.A.,
Inc., respectively.
3
included in the portfolio of MasterCard and VISA
accounts owned by the Bank (the "Bank Portfolio") and
designated for the applicable Trust by the Bank, and
all monies due or to become due in payment of the
Receivables, including certain fees charged on the
Accounts and included as Finance Charge Receivables,
all proceeds of the Receivables and proceeds of credit
insurance policies relating to the Receivables, and
may include the right to receive Interchange, if any,
allowable to the Certificates and all monies on
deposit in certain bank accounts of the Trust
(including any permitted investments made with such
monies and, to the extent specified in the related
Prospectus Supplement, related investment earnings),
and any Enhancement with respect to any particular
Series or Class, as described in the related
Prospectus Supplement. "Interchange" consists of
certain fees received by the Bank from VISA and
MasterCard as partial compensation for taking credit
risk, absorbing fraud losses and funding receivables
for a limited period prior to initial billing. The
term "Enhancement" means, with respect to any Series
or Class, any Credit Enhancement or any derivative
product such as a guaranteed rate agreement, maturity
liquidity facility, interest rate cap agreement,
interest rate swap agreement or other similar arrange-
ment for the benefit of the Certificateholders of that
Series or Class. The term "Credit Enhancement" means,
with respect to any Series or Class, any cash
collateral guaranty or account, collateral interest,
letter of credit, surety bond, insurance policy,
spread account, reserve account or other similar
arrangement for the benefit of the Certificateholders
of that Series or Class. Credit Enhancement may also
take the form of subordination of one or more Classes
of a Series to any other Class or Classes of a Series
or a cross-support feature which requires collections
on Receivables of one Series to be paid as principal
and/or interest with respect to another Series.
At the time of formation of each Trust, the Bank, as
transferor (in such capacity, the "Transferor"), will
convey to the related Trustee all Receivables existing
under certain Accounts selected from the Bank
Portfolio based on criteria provided in the related
Agreement and all Receivables arising under such
Accounts from time to time thereafter until
termination of that Trust. In addition, each Agreement
will provide that the Bank may, from time to time
(subject to certain limitations and conditions), and
in some circumstances will be obligated to, designate
additional eligible revolving credit card accounts to
be included as Accounts (the "Additional Accounts"),
the Receivables of which will be included in the
related Trust and that in lieu of Additional Accounts
or in addition thereto, the Bank may include in the
related Trust, participations or trust certificates
representing undivided interests in a pool of assets
primarily consisting of receivables arising under
consumer revolving credit card accounts and
collections thereon ("Participations"). Any conveyance
by the Transferor to a Trust of Receivables in
Additional Accounts or Participations is subject
4
to the satisfaction of several conditions. See "The
Receivables," "Risk Factors -- Addition of Trust
Assets -- Effect on Credit Quality" and "Description
of the Certificates -- Addition of Trust Assets."
CERTIFICATE INTEREST AND
PRINCIPAL........................ Each Series of Certificates will represent an undivided
interest in the assets of the related Trust. Each
Certificate of a Series will represent the right to
receive payments of (i) interest at the specified rate
or rates per annum (each, a "Certificate Rate"), which
may be a fixed, floating or other type of rate and
(ii) principal at the times and in the circumstances
(if any) described in the related Prospectus
Supplement. Payments of principal may be made during a
Controlled Amortization Period, Principal Amortization
Period, or, under certain limited circumstances, Rapid
Amortization Period (each, an "Amortization Period")
or, under certain limited circumstances, in connection
with a Partial Amortization; or principal may be
payable on Scheduled Payment Dates, in which case such
Series will have a Controlled Accumulation Period and,
under certain limited circumstances if so specified in
the related Prospectus Supplement, a Rapid
Accumulation Period (each, an "Accumulation Period"),
as well as, under certain limited circumstances, a
Rapid Amortization Period, all as specified in the
related Prospectus Supplement.
Each Series of Certificates will consist of one or more
Classes, one or more of which may be senior ("Senior
Certificates") or subordinated ("Subordinated
Certificates") to one or more other Classes. Each
Class of a Series may evidence the right to receive a
specified portion of each distribution of principal,
interest or both. The Certificates of a Class may also
differ from Certificates of other Classes of the same
Series in, among other things, the amounts allocated
to principal payments, priority of payments, payment
dates, maturity, interest rates, interest rate
computation and availability and form of Enhancement.
The assets of each Trust will be allocated among the
Certificateholders of each Series of that Trust and
the holder of the Transferor Certificate of that
Trust. A portion of the assets of a Trust also will be
allocated to a related Credit Enhancement Provider
which provides Credit Enhancement in the form of a
Collateral Interest and may be allocated to a provider
of Credit Enhancement in another form to the extent
draws are made on the Credit Enhancement to pay the
principal of the Certificates of the related Series.
See "Credit Enhancement -- General" and "-- Collateral
Interest." With respect to a Trust, the aggregate
principal amount of the interest of the
Certificateholders of a Series in that Trust is called
the "Investor Interest" and is based on the aggregate
amount of the Principal Receivables in that Trust
allocated to that Series. If specified in any
Prospectus Supplement, the term "Investor Interest"
with respect to the related Series will include the
Collateral Interest with respect to that Series. The
aggregate principal amount of the interest of the
holder of the Transferor Certificate in a Trust is
called
5
the "Transferor Interest," and is based on the sum of
the aggregate amount of Principal Receivables in that
Trust not allocated to the Certificateholders or any
provider of Credit Enhancement (each a "Credit
Enhancement Provider"), with respect to that Trust and
the principal amount, if any, on deposit in the Excess
Funding Account for that Trust. See "Description of
the Certificates -- General."
The Certificateholders of each Series will have the
right to receive (but only to the extent needed to
make required payments under the related Agreement and
the related Series Supplement and subject to any
reallocation of such amounts if the related Series
Supplement so provides) varying percentages of the
collections of Finance Charge Receivables and
Principal Receivables for each month and will be
allocated a varying percentage of the amount of
Receivables in Accounts which were written off as
uncollectible by the Servicer ("Defaulted Accounts")
for that month (each such percentage, an "Investor
Percentage"). The related Prospectus Supplement will
specify the Investor Percentages with respect to the
allocation of collections of Principal Receivables,
Finance Charge Receivables and Receivables in
Defaulted Accounts during the Revolving Period, any
Amortization Period and any Accumulation Period, as
applicable. If the Certificates of a Series offered
hereby include more than one Class of Certificates,
the assets of the related Trust allocable to the
Certificates of that Series may be further allocated
among each Class in that Series as described in the
related Prospectus Supplement. See "Description of the
Certificates -- Investor Percentage and Transferor
Percentage."
The Certificates of each Series will represent interests
in the related Trust only and will not represent
interests in or recourse obligations of the Transferor
or any affiliate thereof. A Certificate is not a
deposit and neither the Certificates nor the under-
lying Accounts or Receivables are insured or
guaranteed by the Federal Deposit Insurance
Corporation (the "FDIC") or any other governmental
agency.
RECEIVABLES....................... The Receivables held in each Trust will arise in
Accounts selected from the Bank Portfolio based on
criteria provided in the related Agreement and
described in the related Prospectus Supplement as
applied initially on the date (the "Cut-Off Date")
specified in the related Prospectus Supplement and,
with respect to certain Additional Accounts, if any,
on subsequent dates.
The Receivables will consist of amounts charged by
cardholders for goods and services, cash advances and
balances transferred from other credit cards (the
"Principal Receivables"), plus the related periodic
finance charges and amounts charged to the Accounts in
respect of certain annual account fees, cash advance
fees, late fees, overlimit fees, closed account
maintenance charges and similar fees and charges
(including fees which are not now but from time to
time may be assessed on
6
the Accounts) (the "Finance Charge Receivables").
Amounts received by the Servicer with respect to
Receivables in Defaulted Accounts (net of related
expenses of outside collection agencies)
(collectively, "Recoveries") also will be treated as
collections of Finance Charge Receivables unless the
related Prospectus Supplement provides that Recoveries
shall not be treated as Finance Charge Receivables for
purposes of the related Series. In addition, if the
Transferor exercises the Discount Option with respect
to a Trust, an amount equal to the product of the
Discount Percentage and the amount of Receivables
arising in the related Accounts on and after the date
such option is exercised that otherwise would be
Principal Receivables will be treated as Finance
Charge Receivables. See "Description of the
Certificates -- Discount Option." Finally, if so
specified in the related Prospectus Supplement,
certain amounts of Interchange attributed to
cardholder charges for goods and services in the
Accounts may be allocated to the Certificates of a
Series or any of its Classes and treated as
collections of Finance Charge Receivables for purposes
of that Series or Class or may be applied in some
other manner as described in the related Prospectus
Supplement. See "First Omni's Credit Card Activities
-- Interchange."
During the term of each Trust, all new Receivables
arising in the Accounts relating to that Trust will be
transferred automatically to that Trust by the
Transferor. The total amount of Receivables in any
Trust will fluctuate from day to day, because the
amount of new Receivables arising in the Accounts and
the amount of payments collected on existing
Receivables usually differ each day.
Pursuant to each Agreement, the Transferor will have the
right (subject to certain limitations and conditions),
and, to the extent necessary to maintain the
Transferor Interest at or above a specified level (the
"Minimum Transferor Interest") and in certain other
circumstances, will be obligated, to designate
additional eligible revolving credit card accounts to
be included as Additional Accounts and to convey to
the related Trust all of the Receivables in the
Additional Accounts, whether such Receivables are then
existing or thereafter created or, if so specified in
the Prospectus Supplement relating to a Series,
designate Participations to be included in the related
Trust in lieu thereof or in addition thereto. See
"Risk Factors -- Addition of Trust Assets -- Effect on
Credit Quality" and "Description of the Certificates
-- Addition of Trust Assets."
Pursuant to each Agreement, the Transferor will have the
right (subject to certain limitations and conditions)
to designate certain Accounts and to accept the
reconveyance of all the Receivables in such Accounts
(the "Removed Accounts"), whether such Receivables are
then existing or thereafter created. See "Description
of the Certificates -- Removal of Accounts."
EXCHANGES......................... Each Agreement will authorize the related Trustee to
issue two types of certificates: (i) one or more Series
of Certificates that
7
will be transferable and have the characteristics
described below; and (ii) a certificate that evidences
the Transferor Interest (the "Transferor
Certificate"), which is not offered hereby and which
initially will be held by the Transferor and will be
transferable only as provided in the related
Agreement. Pursuant to any one or more Series
Supplements to the related Agreement, the Transferor
Certificate or, if provided in the relevant Series
Supplement (and subject to any applicable requirements
under the Exchange Act and the rules and regulations
thereunder, including Rule 13E-4), Certificates repre-
senting any Series (which may include Series offered
pursuant to this Prospectus) issued by that Trust (or
both) may be tendered to the Trustee in exchange for
one or more new Series (which may include Series
offered pursuant to this Prospectus) and, if the
Transferor Certificate is tendered, a reissued
Transferor Certificate (any such tender, an
"Exchange"). Any such Series may be offered to the
public or other investors under a prospectus or other
disclosure document (a "Disclosure Document") in
offerings pursuant to this Prospectus or in
transactions either registered under the Securities
Act of 1933, as amended (the "Securities Act") or
exempt from registration thereunder, directly or
through one or more other underwriters or placement
agents, in fixed-price offerings or in negotiated
transactions or otherwise.
An Exchange may occur only upon delivery to the Trustee
of the following: (i) a Series Supplement specifying
the principal terms (the "Principal Terms") of the new
Series, (ii) (a) an opinion of counsel to the effect
that the certificates of that Series will be
characterized as indebtedness for Federal income tax
purposes, unless the related Series Supplement
indicates that such opinion will not be provided and
(b) an opinion of counsel to the effect that, for
Federal income tax purposes, (1) such issuance will
not adversely affect the tax characterization as debt
of Certificates of any outstanding Series or Class
that were characterized as debt at the time of their
issuance, (2) such issuance will not cause the Trust
to be classified as an association (or publicly traded
partnership) taxable as a corporation and (3) such
issuance will not cause or constitute an event in
which gain or loss would be recognized by any
Certificateholder (an opinion of counsel to this
effect with respect to any action being a "Tax
Opinion"), (iii) if required by the related Series
Supplement, the form of Credit Enhancement, (iv) if
Credit Enhancement is required by the Series
Supplement, an appropriate Credit Enhancement
agreement with respect thereto, (v) written
confirmation from each Rating Agency that the Exchange
will not result in that Rating Agency reducing or
withdrawing its rating on any then outstanding Series
rated by it, (vi) an officer's certificate of the
Transferor to the effect that after giving effect to
the Exchange the Transferor would not be required to
add the Receivables of any Additional Accounts
pursuant to the related Agreement and the Transferor
Interest would be at least equal to the Minimum
8
Transferor Interest and (vii) the existing Transferor
Certificate and, if applicable, the Certificates
representing the Series to be exchanged. See
"Description of the Certificates -- Exchanges."
The Transferor also may from time to time cause the
Trustee to sell interests (each, a "Purchased
Interest") in the Receivables and other assets of a
Trust to one or more purchasers. Any Purchased
Interest will represent an interest in the applicable
Trust's assets similar to the interest of a Series of
Certificates. No Series will be subordinated to any
Purchased Interest, and no Purchased Interest will
have any interest in the Series Accounts or
Enhancement for any Series, unless the Prospectus
Supplement relating to that Series provides that such
Series will be so subordinated and/or that any
Purchased Interest shall have an interest in the
Series Accounts or Enhancement for such Series. Any
such sale will take place pursuant to one or more
agreements which will specify terms similar to
Principal Terms for the applicable Purchased Inter-
ests and may grant the purchasers of such interests
notice and consultation rights with respect to rights
or actions of the Trustee. Any sale of Purchased
Interests in the assets of a Trust will be subject to
the satisfaction of the same conditions (including
Rating Agency confirmations) as for an Exchange, as
appropriately adjusted to apply to the relevant
Purchased Interest rather than an Exchange.
DENOMINATIONS..................... Beneficial interests in the Certificates will be offered
for purchase in the denominations specified in the
related Prospectus Supplement.
REGISTRATION OF CERTIFICATES...... The Certificates of each Series offered hereby may or
may not be represented by Certificates registered in the
name of Cede, as the nominee of DTC, as specified in
the related Prospectus Supplement. If the Certificates
of a Series are so registered, then no Certificate
Owner will be entitled to receive a definitive
certificate representing its interest, except in the
event that Certificates in fully registered,
certificated form ("Definitive Certificates") are
issued under the limited circumstances described
herein. See "Description of the Certificates --
Definitive Certificates."
CLEARANCE AND SETTLEMENT.......... Certificate Owners of each Series offered hereby may or
may not be permitted to make an election to hold their
Certificates through any of DTC (in the United States)
or Cedel or Euroclear (in Europe), as specified in the
related Prospectus Supplement. If such election is
available, then transfers within DTC, Cedel or
Euroclear, as the case may be, will be made in
accordance with the usual rules and operating
procedures of the relevant system. Cross-market
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly through
Cedel or Euroclear, on the other, will be effected in
DTC through the relevant Depositaries of Cedel or
Euroclear. See "Description of the Certificates --
Book-Entry Registration."
9
TRANSFEROR AND SERVICER........... First Omni Bank, N.A. The principal executive offices of
the Bank are located at Millsboro, Delaware, telephone
number (302) 934-2000. The Servicer will receive a fee
as servicing compensation from the related Trust in
respect of each Series in the amounts and at the times
specified in the related Prospectus Supplement (the
"Servicing Fee"). The Servicing Fee may be payable
from Finance Charge Receivables, Interchange or other
amounts as specified in the related Prospectus
Supplement. In certain limited circumstances, the Bank
may resign or be removed, in which event the Trustee
or a third party servicer may be appointed as
successor servicer (the Bank, in this capacity, or any
successor servicer, is called the "Servicer"). The
Bank is a wholly-owned subsidiary of First Maryland
Bancorp (the "Corporation"). See "First Omni and First
Maryland Bancorp."
COLLECTIONS....................... The Servicer will deposit all collections of Receivables
in an account required to be established for such
purpose by the related Agreement (the "Collection
Account"), except that collections of Receivables
conveyed to a Trust other than Trust I may or may not
be deposited by the Servicer in a Collection Account,
as specified in each Prospectus Supplement related to
any Series issued by such Trust. All amounts deposited
in the Collection Account with respect to a Trust will
be allocated by the Servicer between amounts collected
on Principal Receivables and amounts collected on
Finance Charge Receivables. If so specified in the
related Prospectus Supplement, Principal Receivables
and/or Finance Charge Receivables may be otherwise
characterized. See "Description of the Certificates --
Discount Option." All such amounts will then be
further allocated in accordance with the respective
interests of the Certificateholders of each Series or
Class of Certificates and the holder of the Transferor
Certificate and, in certain circumstances, certain
providers of Enhancement. See "Description of the
Certificates -- Investor Percentage and Transferor
Percentage."
INTEREST PAYMENTS................. Interest on each Series of Certificates or Class for
each accrual period (each, an "Interest Period")
specified in the related Prospectus Supplement will be
distributed in the amounts and on the dates (which may
be monthly, quarterly, semiannually or otherwise as
specified in the related Prospectus Supplement) (each,
a "Distribution Date") specified in the related
Prospectus Supplement. Interest payments on each
Distribution Date will be funded from collections of
Finance Charge Receivables allocated to the Investor
Interest during the preceding monthly period or
periods (each, a "Monthly Period"), as described in
the related Prospectus Supplement, and may be funded
from certain investment earnings on funds in certain
accounts of the related Trust and from any applicable
Enhancement, if necessary, or certain other amounts as
specified in the related Prospectus Supplement. If the
Distribution Dates for payment of interest for a
Series or Class occur less frequently than monthly,
such collections or other amounts allocable to such
Series or Class may be deposited in one or more trust
accounts pending
10
distribution to the Certificateholders of such Series
or Class, all as described in the related Prospectus
Supplement. See "Description of the Certificates --
Application of Collections," "-- Shared Excess Finance
Charge Collections," "Credit Enhancement" and "Risk
Factors -- Limited Credit Enhancement."
REVOLVING PERIOD.................. Generally, no principal will be payable to
Certificateholders of any Series or Class until the
Principal Commencement Date or the Scheduled Payment
Date with respect to that Series or Class, as
described below. However, if specified in the related
Prospectus Supplement for a Series or Class, principal
may be payable to Certificateholders of such Series or
Class prior to either such date, in connection with a
Partial Amortization or otherwise. For the period
beginning on the date of issuance of a Series (a
"Closing Date") and ending with the commencement of an
Amortization Period or an Accumulation Period (the
"Revolving Period"), collections of Principal
Receivables otherwise allocable to that Series'
Investor Interest will, subject to certain
limitations, be paid to the holder of the Transferor
Certificate or deposited in the Excess Funding Account
for such Trust or, under certain circumstances and if
so specified in the related Prospectus Supplement,
treated as Shared Principal Collections and paid to
the holders of other Series of Certificates issued by
such Trust, as described herein and in the related
Prospectus Supplement. See "Description of the
Certificates -- Pay Out Events" for a discussion of
the events which might lead to early termination of
the Revolving Period.
PRINCIPAL PAYMENTS................ The principal of the Certificates of each Series offered
hereby will be scheduled to be paid either in
installments commencing on a date specified in the
related Prospectus Supplement (the "Principal
Commencement Date"), in which case such Series will
have either a Controlled Amortization Period or a
Principal Amortization Period, as described below, or
on an expected date specified in, or determined in the
manner specified in, the related Prospectus Supplement
(the "Scheduled Payment Date"), in which case such
Series will have an Accumulation Period, as described
below. If a Series has more than one Class of
Certificates, a different method of paying principal,
Principal Commencement Date or Scheduled Payment Date
may be assigned to each Class. The payment of
principal with respect to the Certificates of a Series
or Class may commence earlier than the applicable
Principal Commencement Date or Scheduled Payment Date,
and the final principal payment with respect to the
Certificates of a Series or Class may be made earlier
or later than the applicable expected payment date,
Scheduled Payment Date or other expected date, if a
Pay Out Event occurs and the Rapid Amortization Period
commences with respect to such Series or Class or
under certain other circumstances described herein or
in the related Prospectus Supplement. See "Description
of the Certificates -- Principal Payments."
11
CONTROLLED AMORTIZATION PERIOD.... A Series or any Class thereof may have a "Controlled
Amortization Period," as specified in the related
Prospectus Supplement, in order to permit payment of
the principal balance of the applicable Certificates
in fixed installments over a specified amortization
period. Unless a Rapid Amortization Period with
respect to a Series that has a Controlled Amortization
Period commences, collections of Principal Receivables
allocable to that Series' Investor Interest during
each Monthly Period falling in its Controlled
Amortization Period (and certain other amounts if so
specified in the related Prospectus Supplement) will
be used on the related Distribution Date to make
principal distributions in scheduled amounts to the
Certificateholders of such Series or any Class of such
Series then scheduled to receive such distributions.
The amount to be distributed on any Distribution Date
during the Controlled Amortization Period will be
limited to an amount (the "Controlled Distribution
Amount") equal to an amount specified in the related
Prospectus Supplement (the "Controlled Amortization
Amount"), plus any controlled amortization amount not
paid on prior Distribution Dates. If a Series has more
than one Class of Certificates, each Class may have a
separate Controlled Amortization Amount. In addition,
the related Prospectus Supplement may describe
priorities among such Classes with respect to such
distributions. The Controlled Amortization Period will
commence at the close of business on a date specified
in the related Prospectus Supplement and continue
until the earliest of (a) the commencement of the
Rapid Amortization Period, (b) payment in full of the
Investor Interest of the Certificates of such Series
or Class and, if so specified in the related Prospec-
tus Supplement, of any related Collateral Interest or
Enhancement Invested Amount and (c) the related Series
Termination Date.
PRINCIPAL AMORTIZATION PERIOD..... A Series or any Class thereof may have a "Principal
Amortization Period" as specified in the related
Prospectus Supplement, in order to permit payment of
the principal balance of the applicable Certificates
in installments over a specified amortization period.
Such installment payments are not limited by any Con-
trolled Amortization Amount during a Principal
Amortization Period. Unless a Rapid Amortization
Period with respect to a Series that has a Principal
Amortization Period commences, collections of
Principal Receivables allocable to that Series'
Investor Interest during each Monthly Period falling
in its Principal Amortization Period (and certain
other amounts if so specified in the related
Prospectus Supplement) will be used on the related
Distribution Date to make principal distributions to
the Certificateholders of that Series or any Class of
that Series then scheduled to receive such
distributions. If a Series has more than one Class of
Certificates, the related Prospectus Supplement may
describe certain priorities among those Classes with
respect to such distributions. The Principal
Amortization Period will commence at the close of
business on a date specified in the related Prospectus
Supplement and
12
continue until the earlier of (a) the commencement of
the Rapid Amortization Period, (b) payment in full of
the Investor Interest of the Certificates of such
Series or Class and, if so specified in the related
Prospectus Supplement, of any related Collateral
Interest or Enhancement Invested Amount and (c) the
related Series Termination Date.
CONTROLLED ACCUMULATION PERIOD.... A Series or any Class thereof may have a "Controlled
Accumulation Period," as specified in the related
Prospectus Supplement, in order to allow for the
accumulation of principal collections in a trust
account established for the benefit of the Cer-
tificateholders of that Series or Class (a "Principal
Funding Account") in anticipation of a balloon payment
on the Scheduled Payment Date. During the Controlled
Accumulation Period, principal collections in excess
of a fixed amount will not be so set aside in the
Principal Funding Account, which permits the
Transferor to continue to have access to collections
which are not then required to be set aside for
payment of the Certificates. Unless a Rapid
Amortization Period or, if so specified in the related
Prospectus Supplement, a Rapid Accumulation Period
with respect to a Series that has a Controlled
Accumulation Period commences, collections of
Principal Receivables allocable to that Series'
Investor Interest during each Monthly Period falling
in its Controlled Accumulation Period (and certain
other amounts if so specified in the related
Prospectus Supplement) will be deposited on the
business day immediately prior to the related
Distribution Date or other business day specified in
the related Prospectus Supplement (each a "Transfer
Date") in the Principal Funding Account for that
Series or Class and used to make distributions of
principal to the Certificateholders of that Series or
Class on the Scheduled Payment Date. The amount to be
deposited in the Principal Funding Account on any
Transfer Date will be limited to an amount (the
"Controlled Deposit Amount") equal to an amount
specified in the related Prospectus Supplement (the
"Controlled Accumulation Amount"), plus any Controlled
Accumulation Amount not deposited on prior Transfer
Dates. If a Series has more than one Class of
Certificates, each Class may have a separate Principal
Funding Account and Controlled Accumulation Amount. In
addition, the related Prospectus Supplement may
describe certain priorities among such Classes with
respect to deposits of principal into such Principal
Funding Accounts. The Controlled Accumulation Period
will commence at the close of business on a date
specified in or determined in the manner specified in
the related Prospectus Supplement and continue until
the earliest of (a) the commencement of the Rapid
Amortization Period or, if so specified in the related
Prospectus Supplement, the Rapid Accumulation Period,
(b) payment in full of the Investor Interest of the
Certificates of that Series or Class and, if so
specified in the related Prospectus Supplement, any
related Collateral Interest or Enhancement Invested
Amount and (c) the related Series Termination Date.
13
Funds on deposit in any Principal Funding Account may be
invested in permitted investments or subject to a
guaranteed rate or investment contract or other
arrangement intended to assure a minimum return on the
investment of such funds. Investment earnings on such
funds may be applied to pay interest on the related
Series of Certificates. In order to enhance the
likelihood of payment in full of principal at the end
of an Accumulation Period with respect to a Series of
Certificates, that Series or any of its Classes may be
subject to a principal payment guaranty or other
similar arrangement.
RAPID ACCUMULATION PERIOD......... A Series or any Class thereof having a Controlled
Accumulation Period may require the commencement of a
"Rapid Accumulation Period" upon the occurrence of a
Pay Out Event in order to halt the Transferor's access
to principal collections allocable to the Investor
Interest of such Series and require that all such
principal collections be set aside pending the balloon
payment on the related Scheduled Payment Date. A Rapid
Accumulation Period, if used, would commence on the
day on which a Pay Out Event has occurred and end on
the earliest of (a) the commencement of the Rapid
Amortization Period, (b) payment in full of the
Investor Interest of the Certificates of such Series
and, if so specified in the related Prospectus Sup-
plement, of the Collateral Interest or the Enhancement
Invested Amount, if any, with respect to such Series
and (c) the related Series Termination Date. During
the Rapid Accumulation Period for a Series,
collections of Principal Receivables allocable to the
Investor Interest of the specified Series during each
Monthly Period (and certain other amounts if so
specified in the related Prospectus Supplement) will
be deposited on the related Transfer Date in the
Principal Funding Account and used to make
distributions of principal to the Certificateholders
of such Series or any Class thereof on the Scheduled
Payment Date. The amount to be deposited in the
Principal Funding Account during the Rapid
Accumulation Period will not be limited to the
Controlled Deposit Amount.
The term "Pay Out Event" with respect to a Series of
Certificates means any of the events identified as
such in the related Prospectus Supplement and any of
the following: (a) certain events of insolvency or
receivership relating to the Transferor, (b) the
Transferor being unable for any reason to transfer
Receivables to such Trust in accordance with the
provisions of the related Agreement or (c) such Trust
becoming an "investment company" within the meaning of
the Investment Company Act of 1940, as amended. See
"Description of the Certificates -- Pay Out Events"
for a discussion of the events which might lead to
commencement of a Rapid Accumulation Period. Providing
for a Rapid Accumulation Period instead of a Rapid
Amortization Period in certain circumstances would
reduce the number of events that could cause
Certificateholders to be repaid their principal
investment prior to their Scheduled Payment Date.
During the Rapid Accumulation Period, funds on deposit
in any Principal Funding Account may be invested in
permitted
14
investments or subject to a guaranteed rate or
investment contract or other arrangement intended to
assure a minimum return on the investment of such
funds. Investment earnings on such funds may be
applied to pay interest on the related Series of
Certificates or make other payments as specified in
the related Prospectus Supplement. In order to enhance
the likelihood of payment in full of principal at the
end of the Rapid Accumulation Period with respect to a
Series of Certificates, such Series or any Class
thereof may be subject to a principal payment guaranty
or other similar arrangement.
RAPID AMORTIZATION PERIOD......... Each Series will be subject to early payment following
the occurrence of a Pay Out Event (or a date following
the occurrence of a Pay Out Event in the case of a
Series subject to a Rapid Accumulation Period, as
specified in the related Prospectus Supplement)
through the monthly application of such Series'
allocable share of principal collections. During the
period from the day on which a Pay Out Event has
occurred with respect to a Series or, if so specified
in the Prospectus Supplement relating to a Series with
a Controlled Accumulation Period, from such time
specified in the related Prospectus Supplement after a
Pay Out Event has occurred and the Rapid Accumulation
Period has commenced, to the earlier of (a) the date
on which the Investor Interest of the Certificates of
such Series and the Collateral Interest or the
Enhancement Invested Amount, if any, with respect to
such Series have been paid in full and (b) the related
Series Termination Date (the "Rapid Amortization
Period"), collections of Principal Receivables
allocable to the Investor Interest of such Series (and
certain other amounts if so specified in the related
Prospectus Supplement) will be distributed as
principal payments to the Certificateholders of such
Series and, in certain circumstances, to the Credit
Enhancement Provider, monthly on each Distribution
Date with respect to such Series in the manner and
order of priority set forth in the related Prospectus
Supplement. If a Rapid Amortization Period commences,
then such of the Revolving Period, Controlled
Amortization Period, Principal Amortization Period,
Controlled Accumulation Period or Rapid Accumulation
Period which is then in effect with respect to the
applicable Series will terminate, and no portion of
such Series' allocable share of principal collections
will be paid to the Transferor or the Holders of any
other outstanding Series or retained in the Excess
Funding Account. Rather, the entire amount of such
Series' share of principal collections will be
distributed to the Certificateholders of such Series
on each Distribution Date during the Rapid
Amortization Period.
During the Rapid Amortization Period with respect to a
Series, distributions of principal will not be limited
by any Controlled Deposit Amount or Controlled
Distribution Amount. In addition, upon the
commencement of the Rapid Amortization Period with
respect to a Series, any funds on deposit in a
Principal Funding Account with respect to such Series
or any
15
Class thereof will be paid to the Certificateholders
of such Series or Class on the first Distribution Date
in the Rapid Amortization Period.
PARTIAL AMORTIZATION.............. If so specified in the Prospectus Supplement relating to
a Series, one or more Classes of Certificates in that
Series may be subject to a partial early amortization
(a "Partial Amortization") in the circumstances
described below. In the event that the Transferor is
required to add the Receivables of Additional Accounts
pursuant to the related Agreement and the Transferor
is unable to designate sufficient Eligible Accounts
for such purpose, then the Transferor may elect to
avoid a Pay Out Event based on such inability by
commencing a Partial Amortization for the applicable
Series. During a Partial Amortization for any Series
or Class, a portion (as specified in the related
Prospectus Supplement) of collections of Principal
Receivables which otherwise would be treated as Shared
Principal Collections will be payable to the
Certificateholders of such Series or Class, commencing
on a specified Distribution Date following the
commencement of such Partial Amortization until the
Transferor is no longer required to add Receivables of
Additional Accounts to the applicable Trust.
SHARED EXCESS FINANCE
CHARGE COLLECTIONS............... Any Series offered hereby may be included in a group of
Series (a "Group"). All Series constituting part of the
same Group will represent interests in the same Trust.
If so specified in the related Prospectus Supplement,
the Certificateholders of a Series within a Group or
any Class thereof may be entitled to receive all or a
portion of collections of Finance Charge Receivables
with respect to another Series or Class thereof within
such Group which are in excess of the amounts then
payable to such other Series or Class from such
collections. The receiving Series or Class may then
use such excess to cover any shortfalls with respect
to amounts payable from collections of Finance Charge
Receivables allocable to such Series or Class. By so
sharing such excess collections of Finance Charge
Receivables, the Transferor can more efficiently use
available investor funds to cover required payments on
all Series and thus avoid the occurrence of a Pay Out
Event with respect to any Series resulting from a cash
flow shortfall which is limited to that Series and is
merely temporary. "Excess Finance Charge Collections"
may or may not be determined for any Series or Class.
If "Excess Finance Charge Collections" is determined
for any Series or Class, the amount of "Excess Finance
Charge Collections" will be determined as described in
the related Prospectus Supplement, or if not so
described will equal, for any Monthly Period, the
excess of collections of Finance Charge Receivables
and certain other amounts allocated to the Investor
Interest of that Series or Class over the sum of (i)
interest accrued for the current month ("Monthly
Interest") and overdue Monthly Interest on the
Certificates of such Series or Class (and, if
applicable, interest on overdue Monthly Interest at
the rate specified in the related Prospectus
16
Supplement ("Additional Interest")), (ii) accrued and
unpaid Investor Servicing Fees with respect to such
Series or Class payable from collections of Finance
Charge Receivables, (iii) the Investor Default Amount
with respect to such Series or Class and (iv)
unreimbursed Investor Charge-Offs with respect to such
Series or Class. The term "Investor Servicing Fee" for
any Series of Certificates or Class means the
Servicing Fee allocable to that Series's or Class's
Investor Interest, as specified in the related
Prospectus Supplement. The term "Investor Default
Amount" means, for any Monthly Period and for any
Series or Class thereof, the aggregate amount of the
applicable Investor Percentage of Principal
Receivables in Defaulted Accounts. The term "Investor
Charge-Off" means, for any Monthly Period and for any
Series or Class thereof, the amount by which (a) the
related Monthly Interest and overdue Monthly Interest
(together with, if applicable, Additional Interest),
accrued and unpaid Investor Servicing Fees payable
from collections of Finance Charge Receivables, the
Investor Default Amount and any required fees exceeds
(b) amounts available to pay such amounts out of
collections of Finance Charge Receivables, available
Credit Enhancement amounts, if any, and other sources
specified in the related Prospectus Supplement, but
not more than such Investor Default Amount. See
"Description of the Certificates -- Application of
Collections," "-- Shared Excess Finance Charge
Collections," "-- Defaulted Receivables; Incentive
Payments and Fraudulent Charges; Investor Charge-Offs"
and "Credit Enhancement."
SHARED PRINCIPAL COLLECTIONS...... If so specified in the related Prospectus Supplement, to
the extent that collections of Principal Receivables
that are allocated to the Investor Interest of any
Series are not needed to make payments or deposits
with respect to such Series, such collections ("Shared
Principal Collections") will be applied to cover
principal payments due to or for the benefit of
Certificateholders of another Series and, if not
needed for that purpose, will generally be distributed
to the Transferor. By so applying Shared Principal
Collections, the Transferor may make more efficient
use of investor principal Collections to repay inves-
tors' investment when due or for its own purposes when
no return of investors' investment is due. If so
specified in the related Prospectus Supplement, the
allocation of Shared Principal Collections may be
among Series within a Group. Any such reallocation
will not result in a reduction in the Investor
Interest of the Series to which such collections were
initially allocated.
EXCESS FUNDING ACCOUNT............ If on any date the Transferor Interest is less than the
Minimum Transferor Interest, the Servicer will not
distribute to the holder of the Transferor Certificate
any Shared Principal Collections that otherwise would
be so distributed, but will instead deposit such funds
in an account required to be established for such
purpose by the related Agreement (the "Excess Funding
Account"), until the Transferor Interest equals the
Minimum Transferor Interest. Funds on deposit in the
Excess Funding
17
Account will be withdrawn and paid to the holder of
the Transferor Certificate on any date to the extent
that the Transferor Interest exceeds the Minimum
Transferor Interest on such date, except that, if a
Controlled Accumulation Period, Controlled
Amortization Period, Principal Amortization, Rapid
Amortization Period or Rapid Accumulation Period com-
mences with respect to any Series in a Group entitled
to the benefits of Shared Principal Collections, an
amount of funds on deposit in the Excess Funding
Account (after giving effect to the release of funds
to the holder of the Transferor Certificate as
described above) up to the amount, if any, by which
the Transferor Interest would be less than zero if
there were no funds on deposit in the Excess Funding
Account on such date, will be treated as Shared
Principal Collections to the extent needed to cover
principal payments due to or for the benefit of such
Series, if so provided by the related Series
Supplement. See "Description of the Certificates --
Excess Funding Account."
PAIRED SERIES..................... If so specified in the Prospectus Supplement relating to
a Series, such Series may be paired with another Series
(each, a "Paired Series"), such that a reduction in
the Investor Interest or Adjusted Investor Interest of
one such Series results in an increase in the Investor
Interest of the other such Series. The effects of this
feature will be discussed in the Prospectus Sup-
plement relating to any Paired Series. See
"Description of the Certificates -- Paired Series."
FUNDING PERIOD.................... The Prospectus Supplement relating to a Series of
Certificates may specify that for a period beginning on
the Closing Date and ending on a specified date before
the commencement of an Amortization Period or
Accumulation Period with respect to such Series (the
"Funding Period"), which period is expected to be less
than a year, the aggregate amount of Principal
Receivables in the related Trust allocable to such
Series may be less than the aggregate principal amount
of the Certificates of such Series and that the amount
of such deficiency (the "Pre-Funding Amount") will be
held in a trust account established with the related
Trustee for the benefit of Certificateholders of such
Series (the "Pre-Funding Account") pending the
transfer of additional Principal Receivables to the
Trust or pending the reduction of the Investor
Interests of other Series issued by the related Trust.
The Pre-Funding Amount may be up to 100% of the
principal amount of the Certificates of a Series. The
related Prospectus Supplement will specify the initial
Investor Interest on the Closing Date with respect to
such Series, the aggregate principal amount of the
Certificates of such Series (the "Full Investor
Interest") and the date by which the Investor Interest
is expected to equal the Full Investor Interest. The
Investor Interest will increase as Principal
Receivables are added to the related Trust or as the
Investor Interests of other Series of the related
Trust are reduced.
During the Funding Period, funds on deposit in the
Pre-Funding Account for a Series of Certificates will
be withdrawn and paid
18
to the holder of the Transferor Certificate or its
assigns to the extent of any increases in the Investor
Interest. In the event that the Investor Interest does
not for any reason equal the Full Investor Interest by
the end of the Funding Period, any amount remaining in
the Pre-Funding Account will be payable to the
Certificateholders of such Series in the manner and at
such time as set forth in the related Prospectus
Supplement. Such payment will reduce the aggregate
principal amount of such Certificates. In addition, a
prepayment premium or penalty or similar amount may be
payable to Certificateholders of such Series, if
specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement,
funds on deposit in the Pre-Funding Account may be
invested in Permitted Investments or subject to a
guaranteed rate or investment agreement or other
similar arrangement, and investment earnings and any
applicable payment under any such investment
arrangement will be applied to pay interest on the
Certificates of such Series.
CREDIT ENHANCEMENT................ Credit Enhancement with respect to a Series or any Class
thereof may be provided in the form or forms of
subordination, a cash collateral account or guaranty,
a collateral interest, a letter of credit, a surety
bond, an insurance policy, a spread account, a reserve
account or other form of support as specified in the
related Prospectus Supplement. Credit Enhancement may
also be provided to a Class or Classes of different
Series by a cross-support feature which requires that
distributions of principal and/or interest be made
with respect to Certificates of one or more Classes of
a particular Series before distributions are made to
one or more Classes of another Series.
The type, characteristics and amount of the Credit
Enhancement will be determined based on several
factors, including the characteristics of the
Receivables and Accounts included in the Trust
Portfolio as of the Closing Date with respect to any
Series, and will be established on the basis of
requirements of each Rating Agency rating the
Certificates of such Series. If so specified in the
related Prospectus Supplement, any such Credit
Enhancement will apply only in the event of certain
types of losses and the protection against losses
provided by such Credit Enhancement will be limited.
The terms of the Credit Enhancement with respect to a
Series, and the conditions under which the Credit
Enhancement may be increased, reduced or replaced,
will be described in the related Prospectus
Supplement. See "Credit Enhancement" and "Risk Factors
-- Limitations of Certificate Rating."
OPTIONAL REPURCHASE............... With respect to each Series of Certificates, the
Investor Interest will be subject to optional repurchase
by the Transferor on any Distribution Date after the
Investor Interest and the Enhancement Invested Amount,
if any, with respect to such Series is reduced to an
amount less than or equal to 5% of the initial
Investor Interest, if any, or such other amount
specified in the related Prospectus Supplement, if
certain conditions set forth
19
in the related Agreement are met. The repurchase price
will be as specified in the related Prospectus
Supplement, or, if not so specified, will equal the
Investor Interest (less the amount, if any, on deposit
in any Principal Funding Account with respect to such
Series), plus the Enhancement Invested Amount, if any,
with respect to such Series, plus accrued and unpaid
interest on the Certificates and interest or other
amounts payable on the Collateral Interest or the
Enhancement Invested Amount, if any, through the day
preceding the Distribution Date on which the
repurchase occurs. See "Description of the
Certificates -- Final Payment of Principal;
Termination."
TAX STATUS........................ Special Tax Counsel will render an opinion that the
Offered Certificates of such Series will be
characterized as indebtedness for Federal income tax
purposes. The Certificate Owners will agree to treat
the Offered Certificates as debt for Federal income
tax purposes. See "U.S. Federal Income Tax Conse-
quences" for additional information concerning the
application of Federal income tax laws.
ERISA CONSIDERATIONS.............. Under regulations issued by the Department of Labor, the
Trust's assets would not be deemed "plan assets" of any
employee benefit plan holding interests in the
Certificates of a Series if certain conditions are
met. If a Trust's assets were deemed to be "plan
assets" of an employee benefit plan, there is uncer-
tainty as to whether existing exemptions from the
"prohibited transaction" rules of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), would apply to all transactions involving
such Trust's assets. No assurance can be made with
respect to any offering of the Certificates of any
Series that the conditions which would allow the Trust
assets not to be deemed "plan assets" will be met,
although the intention of the underwriters (but not
their assurance) as to whether the Certificates of a
particular Series will be "publicly-offered
securities", and therefore eligible for an ERISA
exemption, will be set forth in the related Prospectus
Supplement. Accordingly, employee benefit plans
contemplating purchasing interests in Certificates
should consult their counsel before making a purchase.
See "ERISA Considerations."
CERTIFICATE RATING................ It will be a condition to the issuance of the
Certificates of each Series or Class thereof offered
pursuant to this Prospectus and the related Prospectus
Supplement that they be rated in one of the four
highest rating categories by at least one nationally
recognized rating organization (each such rating
organization selected by the Transferor to rate any
Series, a "Rating Agency"). The rating or ratings
applicable to the Certificates of each Series or Class
thereof offered hereby will be set forth in the
related Prospectus Supplement.
A rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning Rating Agency.
Each rating should be evaluated independently of any
other rating. See "Risk Factors -- Limitations of
Certificate Rating."
20
LISTING........................... If so specified in the Prospectus Supplement relating to
a Series, application will be made to list the
Certificates of such Series, or all or a portion of
any Class thereof, on the Luxembourg Stock Exchange or
any other specified exchange.
21
RISK FACTORS
Potential investors should consider, among other things, the following
considerations in connection with the purchase of the Certificates.
POTENTIAL PRIORITY OF CERTAIN LIENS. The Transferor will transfer interests
in Receivables to each Trust. A court could treat any such transaction as an
assignment of collateral as security for the benefit of holders of Certificates
issued by such Trust. The Transferor will represent and warrant in each
Agreement that the transfer of the Receivables to the related Trust is either a
valid transfer and assignment of the related Receivables to that Trust or the
grant to the related Trustee of a security interest in such Receivables. With
respect to each Trust, the Transferor will take actions required to perfect that
Trust's security interest in the related Receivables and will warrant that if
the transfer to that Trust is deemed to be a grant of a security interest in the
related Receivables, the Trustee will have a first priority perfected security
interest therein, except for certain tax and other governmental liens and, with
certain exceptions and for certain limited periods of time provided for in the
Uniform Commercial Code as in effect in the State of Delaware, in the proceeds
thereof. Nevertheless, if the transfer of Receivables to a Trust is deemed to
create a security interest therein, a tax or government lien or other
nonconsensual lien on property of the Transferor arising before Receivables come
into existence may have priority over the Trust's interest in such Receivables,
and if the FDIC were appointed receiver of the Transferor, the receiver's
administrative expenses may also have priority over the Trust's interest in such
Receivables. The existence of such liens or rights of the receiver of the
Transferor could result in possible reductions in the amount of payments on the
Certificates. See "Certain Legal Aspects of the Receivables -- Transfer of
Receivables."
RECEIVERSHIP OF TRANSFEROR. To the extent that the Transferor has granted
or will grant a security interest in Receivables to a Trust and that security
interest is validly perfected before the Transferor's insolvency (and was not or
will not be taken in contemplation of insolvency of the Transferor, or with the
intent to hinder, delay or defraud the Transferor or the creditors of the
Transferor), the Federal Deposit Insurance Act ("FDIA"), as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended
("FIRREA"), provides that such security interest should not be subject to
avoidance by the FDIC, as receiver for the Transferor. Positions taken by the
FDIC staff prior to the passage of FIRREA suggest that the FDIC, as receiver for
the Transferor, would not interfere with the timely transfer to a Trust of
payments collected on the related Receivables. If, however, the FDIC were to
assert a contrary position, such as requiring the Trustee to establish its right
to those payments by submitting to and completing the administrative claims
procedure under the FDIA, or the conservator or receiver were to request a stay
of proceedings with respect to the Transferor as provided under the FDIA, delays
in payments on the related Series of Certificates and possible reductions in the
amount of those payments could occur.
If a conservator or receiver were appointed for the Transferor, then a Pay
Out Event could occur with respect to all Series then outstanding and, pursuant
to the related Agreement, new Principal Receivables would not be transferred to
the related Trust and the Trustee would sell the Receivables (unless otherwise
instructed by holders of more than 50% of the Investor Interest of each Series
of Certificates, or with respect to any Series with more than one Class, of each
Class, and any other Person specified in the related Agreement or a Series
Supplement), thereby causing early termination of the Trust and a loss to
Certificateholders of a Series if the net proceeds of such sale allocable to
such Series were insufficient to pay the Certificateholders of such Series in
full. If a Pay Out Event occurs involving either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Rapid
Amortization Period or, if applicable with respect to a Series as specified in
the related Prospectus Supplement, the Rapid Accumulation Period. Such action
could cause delays or shortfalls in the amounts ultimately paid to
Certificateholders. A conservator or receiver may also have the power to cause
the early sale of the Receivables and the early retirement of the Certificates
of each Series or to prohibit the continued transfer of Principal Receivables to
a Trust. In addition, in the event of a Servicer Default relating to the
conservatorship or receivership of the Servicer, if no Servicer Default other
than such
22
conservatorship or receivership exists, the conservator or receiver for the
Servicer may have the power to prevent either the Trustee or the
Certificateholders from appointing a successor Servicer under the related
Agreement. See "Certain Legal Aspects of the Receivables -- Certain Matters
Relating to Receivership."
EFFECTS OF APPLICABLE LAW
LIMITATIONS IMPOSED BY CONSUMER PROTECTION LAWS. Federal and state consumer
protection laws impose requirements on the making and enforcement of consumer
loans. Congress and the states may enact new laws and amendments to existing
laws to regulate further the credit card and consumer credit industry or to
reduce finance charges or other fees or charges applicable to credit card
accounts. Such laws, as well as any new laws or rulings which may be adopted,
may adversely affect the Servicer's ability to collect on the Receivables or
maintain previous levels of monthly periodic finance charges and other credit
card fees. One effect of any legislation which regulates the amount of interest
and other charges that may be assessed on credit card account balances could be
to reduce the Portfolio Yield on the Accounts. If such legislation were to
result in a significant reduction in the Portfolio Yield, a Pay Out Event could
occur, in which case the Rapid Amortization Period or, if so specified in the
related Prospectus Supplement, the Rapid Accumulation Period would commence.
Certificateholders of an affected Series might then receive principal payments
earlier than expected. See "Description of the Certificates -- Pay Out Events."
If the resulting reduction in the Portfolio Yield were significant enough, there
could be reductions in payments to Certificateholders of an affected Series.
Pursuant to each Agreement, the Transferor will covenant to accept
reassignment, subject to certain conditions described under "Description of the
Certificates -- Representations and Warranties," of each Receivable that does
not comply in all material respects with all requirements of applicable law. The
Transferor will make certain other representations and warranties relating to
the validity and enforceability of the Receivables. However, it is not
anticipated that the Trustee will make any examination of the related
Receivables or the records relating thereto for the purpose of establishing the
presence or absence of defects, compliance with such representations and
warranties, or for any other purpose. The sole remedy if any such representation
or warranty is breached and such breach continues beyond the applicable cure
period is that the Transferor will be obligated to accept reassignment, subject
to certain conditions described under "Description of the Certificates --
Representations and Warranties," of the Receivables affected thereby. See
"Description of the Certificates -- Representations and Warranties" and "Certain
Legal Aspects of the Receivables -- Consumer Protection Laws."
APPLICATION OF BANKRUPTCY LAW. Application of Federal and state bankruptcy
and debtor relief laws would affect the interests of the Certificateholders in
the Receivables if such laws result in any Receivables being written off as
uncollectible when there are no funds available from any Credit Enhancement or
other sources to cover any resulting shortfalls in amounts payable to
Certificateholders. See "Description of the Certificates -- Defaulted
Receivables; Incentive Payments and Fraudulent Charges; Investor Charge-Offs."
LITIGATION LIMITING CREDIT CARD CHARGES BY BANKS. In October 1991, the
United States District Court for the State of Massachusetts held that Greenwood
Trust Company (a Federally-insured, Delaware-chartered bank that issues the
Discover credit card) was prohibited by Massachusetts law from assessing late
charges on credit card accounts of Massachusetts residents. Following the
District Court's decision, a number of class action lawsuits or administrative
actions were filed in several states against out-of-state banks (both
Federally-insured, state-chartered banks and Federally-insured, national banks)
which issue credit cards. These actions challenge a portion or all of the
various fees and charges (such as late fees, overlimit fees, returned check
fees, and annual account fees) assessed against residents of states in which
such suits were filed, based on restrictions or prohibitions under such states'
laws alleged to be applicable to the out-of-state credit card issuers. The
Transferor has been named a defendant in two of such lawsuits filed in
Pennsylvania.
On August 6, 1992, the decision of the District Court regarding the
Greenwood Trust Company matter was reversed by the United States Court of
Appeals for the First Circuit, which held that the Massachusetts law was
preempted by Federal law permitting the charges in question. In January 1993,
the United States Supreme Court denied a petition from the Commonwealth of
Massachusetts to accept the case. Since the
23
First Circuit's ruling in the Greenwood Trust matter, several federal and state
courts (including the United States Court of Appeals for the Third Circuit, the
Supreme Court of California and the Supreme Court of Colorado) have issued
rulings which find, variously, that late fees, overlimit fees, returned check
charges or annual account fees fall within the definition of the term
"interest", as such term is defined in the National Bank Act, and that the
permissibility of a national bank charging such fees and charges consequently is
governed by federal law. However, at least two decisions (including a decision
by the Supreme Court of New Jersey) have found, variously, that late fees,
overlimit fees, returned check charges and annual account fees are not interest
and therefore may not be charged by a national bank unless permitted by the law
of the state in which the customer resides. A petition for a WRIT OF CERTIORARI
has been filed with the United States Supreme Court in connection with the
ruling by the California Supreme Court based on this conflict. Such actions and
similar actions which may be brought in other states as a result of such
actions, if resolved adversely to bank credit card issuers, could have the
effect of limiting certain charges, other than periodic finance charges, that
could be assessed on credit card accounts of residents of such states and could
require credit card issuers to pay refunds and civil penalties with respect to
charges previously imposed on cardholders in such states. A limitation on credit
card charges applicable to the Accounts could reduce the Portfolio Yield, and if
such reduction were significant, result in a Pay Out Event, in which case the
Rapid Amortization Period or, if so specified in the related Prospectus
Supplement, the Rapid Accumulation Period would commence. Certificateholders of
an affected Series might then receive principal payments earlier than expected.
If the resulting reduction in the Portfolio Yield were significant enough, there
could be reductions in payments to Certificateholders of an affected Series.
COMPETITION IN THE CREDIT CARD INDUSTRY. The credit card industry is highly
competitive. As new credit card issuers enter the market and all issuers seek to
expand their share of the market, there is increased use of advertising, target
marketing and pricing competition. Each Trust will be dependent upon the
Transferor's continued ability to generate new Receivables. If the rate at which
new Receivables are generated declines significantly and the Transferor is
unable to designate Additional Accounts with respect to a Trust, a Partial
Amortization for one or more Series relating to such Trust could occur or a Pay
Out Event could occur with respect to each Series relating to such Trust, in
which case the Rapid Amortization Period or, if so specified in the related
Prospectus Supplement, the Rapid Accumulation Period with respect to each such
Series would commence. Certificateholders of an affected Series might then
receive principal payments earlier than expected.
PAYMENTS OTHER THAN AT EXPECTED MATURITY. The Receivables may be paid at
any time and there is no assurance that there will be additional Receivables
created in the Accounts or that any particular pattern of cardholder repayments
will occur. The commencement and continuation of a Controlled Amortization
Period, a Principal Amortization Period, or a Controlled Accumulation Period for
a Series or Class thereof with respect to a Trust will be dependent upon the
continued generation of new Receivables to be conveyed to such Trust. A
significant decline in the amount of Receivables generated could result in the
occurrence of a Partial Amortization for one or more Series or a Pay Out Event
for one or more Series and the commencement of the Rapid Amortization Period or,
if so specified in the related Prospectus Supplement, the Rapid Accumulation
Period for each such Series. If a Pay Out Event occurs and the Rapid
Amortization Period commences, or if a Partial Amortization occurs, the average
life to maturity of the affected Series of Certificates could be significantly
reduced.
In addition, the Transferor can give no assurance that the payment rate
assumptions for any Series will prove to be correct. The related Prospectus
Supplement will provide certain historical data relating to payments by
cardholders, total charge-offs and other related information relating to the
applicable Trust Portfolio. There can be no assurance that future events will be
consistent with such historical data. In particular, Certificateholders should
be aware that the Transferor's ability to continue to compete in the current
industry environment will affect the Transferor's ability to generate new
Receivables to be conveyed to each Trust and may also affect payment patterns.
Further, the amount of collections of Receivables may vary from month to
month due to seasonal variations, general economic conditions, changes in
periodic finance charges and payment habits of individual cardholders. A
significant decrease in such monthly payment rate could slow the return or
accumulation
24
of principal during an Amortization Period or Accumulation Period. No assurance
can be given that payments of principal will be made as expected during the
Controlled Amortization Period or the Principal Amortization Period, or with
respect to an Accumulation Period, or on the Scheduled Payment Date, as
applicable. Further, there can be no assurance that collections of Principal
Receivables with respect to any Trust Portfolio, and thus the rate at which the
related Certificateholders could expect to receive or accumulate payments of
principal on their Certificates during an Amortization Period or Accumulation
Period, or on any Scheduled Payment Date, as applicable, will be similar to any
historical experience set forth in a related Prospectus Supplement.
EFFECT OF SOCIAL, LEGAL AND ECONOMIC FACTORS ON CREDIT CARD USAGE. Changes
in use of credit and payment patterns by customers may result from a variety of
social, legal and economic factors. Economic factors include the rate of
inflation, seasonal buying patterns, unemployment levels and relative interest
rates. Social factors also include unemployment rates as well as changes in
consumer confidence levels and attitudes toward incurring debt. Legal factors
include the application of usury and consumer protection laws. Cardholders whose
accounts are included in the Bank Portfolio have addresses in all 50 states and
the District of Columbia. Social, legal and economic factors in the State of
Maryland may have a disproportionate effect on a Trust because of the relatively
large percentage of Accounts in such State. See "The Receivables" in the related
Prospectus Supplement. The Transferor, however, is unable to determine and has
no basis to predict whether, or to what extent, social, legal or economic
factors will affect future use of credit or repayment patterns.
PREPAYMENT RESULTING FROM PRE-FUNDING ACCOUNT. With respect to any Series
having a Pre-Funding Account, in the event that there is an insufficient amount
of Principal Receivables in the related Trust at the end of the applicable
Funding Period, the Certificateholders of such Series will be repaid principal
from amounts on deposit in the Pre-Funding Account (to the extent of such
insufficiency) following the end of such Funding Period, as described more fully
in the Prospectus Supplement. Such repayment of principal would be prior to the
scheduled date of such repayment. As a result of such repayment,
Certificateholders would receive a principal payment earlier than they expected.
In addition, Certificateholders would not receive the benefit of the applicable
Certificate Rate for the period of time originally expected on the amount of
such early repayment. There can be no assurance that a Certificateholder would
be able to reinvest such early repayment amount at a similar rate of return. If
a Certificateholder is not able to reinvest such early repayment amount at the
same rate of return or better, the Certificateholder's anticipated yield would
be adversely affected. However, a Series with a Pre-Funding Account feature may
also require the payment of a prepayment premium in such a circumstance, which
would mitigate the adverse effect to the Certificateholder's anticipated yield.
EFFECT OF SUBORDINATION. With respect to Certificates of a Series having a
Class or Classes of Subordinated Certificates, payments of principal in respect
of the Subordinated Certificates of a Series will commence on the date specified
in the related Prospectus Supplement, which generally will be after the final
principal payment with respect to the Senior Certificates of such Series. In
addition, if so specified in the related Prospectus Supplement, if collections
of Finance Charge Receivables allocable to the Certificates of a Series are
insufficient to cover required amounts due with respect to the Senior
Certificates of such Series, the Investor Interest with respect to the
Subordinated Certificates will be reduced, resulting in a reduction of the
portion of collections of Finance Charge Receivables allocable to the
Subordinated Certificates in future periods and a possible delay or reduction in
principal and interest payments on the Subordinated Certificates. Moreover, if
so specified in the related Prospectus Supplement, in the event of a sale of
Receivables in a Trust due to the insolvency of the Transferor or the
appointment of a conservator or receiver for the Transferor, or due to the
inability of the Trustee to act as or find a successor Servicer after a Servicer
Default, the portion of the net proceeds of such sale allocable to pay principal
to the Certificates of a Series will be used first to pay amounts due to the
Senior Certificateholders and any remainder will be used to pay amounts due to
the Subordinated Certificateholders.
TRANSFEROR'S ABILITY TO ADVERSELY CHANGE TERMS OF THE RECEIVABLES. Pursuant
to each Agreement, the Transferor does not transfer to the related Trust the
Accounts but only the Receivables arising in the Accounts. As owner of the
Accounts, the Transferor retains the right to determine the monthly periodic
25
finance charges and other fees which will be applicable from time to time to the
Accounts, to alter the minimum monthly payment required on the Accounts and to
change various other terms with respect to the Accounts, including changing the
annual percentage rate from a fixed rate to a variable rate or vice versa. A
decrease in the periodic finance charge or a reduction in credit card or other
fees would decrease the effective yield on the Accounts with respect to a Trust
and could result in the occurrence of a Pay Out Event with respect to each
Series relating to such Trust and the commencement of the Rapid Amortization
Period or, if so specified in the related Prospectus Supplement, the Rapid
Accumulation Period with respect to each such Series. Certificateholders of an
affected Series might then receive principal payments earlier than expected. If
the resulting reduction reduced the Portfolio Yield significantly, there could
be reductions in payments to Certificateholders of an affected Series. Under the
Agreement, the Transferor will agree, and, under each New Agreement the
Transferor will agree (unless the related Prospectus Supplement indicates that
the Transferor will not so agree), that, except as otherwise required by law or
as is deemed by the Transferor to be necessary in order to maintain its credit
card business, based upon a good faith assessment by it, in its sole discretion,
of the nature of the competition in that business, the Transferor will not
reduce the annual percentage rate or the periodic finance charges assessed on
the related Receivables or other fees on the related Accounts if, as a result of
such reduction, the Portfolio Yield for any Series as of such date would be less
than the Base Rate for such Series. The Transferor from time to time may offer
special rates (generally of limited duration) which may be less than the annual
percentage rates applicable to other Receivables. The terms "Portfolio Yield"
and "Base Rate" for each Series will have the meanings set forth in the
Prospectus Supplement relating to each such Series. In addition, the Agreement
will provide, and each New Agreement will provide (unless the related Prospectus
Supplement indicates that such New Agreement will not so provide), that the
Transferor may change the terms of the contracts relating to the related
Accounts or its servicing policies and procedures (including changes that could
reduce the required minimum monthly payment and change the calculation of the
amount or the timing of finance charges, credit card fees and charge offs), if
such change (i) would not, in the reasonable belief of the Transferor, cause a
Pay Out Event for any related Series to occur, and (ii) is made applicable to
the comparable segment of revolving credit card accounts owned and serviced by
the Transferor which have characteristics the same as or substantially similar
to the related Accounts which are subject to such change. In servicing the
Accounts, the Servicer will be required to exercise the same care and apply the
same policies that it exercises in handling similar matters for its own
comparable accounts. Except as specified above or in any Prospectus Supplement,
there will be no restrictions on the Transferor's ability to change the terms of
the Accounts. There can be no assurance that changes in applicable law, changes
in the marketplace or prudent business practice might not result in a
determination by the Transferor to take actions which would change this or other
Account terms or that such changes would not be adverse to the interests of
Certificateholders. See "Receivable Yield Considerations" in the Prospectus
Supplement.
INCENTIVE PROGRAMS. Since October of 1995, First Omni has established
incentive programs applicable to certain co-branded accounts in the Bank
Portfolio. These programs permit a qualifying cardholder participating in the
program to earn incentive payments payable by First Omni to or for the account
of the cardholder, in an amount equal to a portion of certain purchases and cash
advances (including incentives for opening and using an account). The incentive
payments may be used by the cardholder to pay certain charges or fees billed to
such cardholders by the co-brand counterparty. In no event will a Trust assume
the obligation to make any incentive payment earned under any of First Omni's
incentive programs. See "DESCRIPTION OF THE CERTIFICATES -- DEFAULTED
RECEIVABLES; INCENTIVE PAYMENTS AND FRAUDULENT CHARGES; INVESTOR CHARGE-OFFS."
If accounts subject to any such incentive programs are included in the
Identified Portfolio for any Trust, a cardholder entitled to receive an
incentive payment from First Omni might assert that he or she could reduce the
amount he or she was required to pay on a Receivable if First Omni failed to
make the incentive payment.
BASIS RISK. If so specified in the related Prospectus Supplement, a portion
of the Accounts in a Trust will have finance charges set at a variable rate
above a designated prime rate or other designated index. A Series of
Certificates issued by such Trust may bear interest at a fixed rate or at a
floating rate based on an index other than such prime rate or other designated
index. If there is a decline in such prime rate or other designated index, the
amount of collections of Finance Charge Receivables on such Accounts may be
26
reduced, whereas the amounts payable as Monthly Interest on such Series of
Certificates and other amounts required to be funded out of collections of
Finance Charge Receivables with respect to such Series may not be similarly
reduced. Conversely, to the extent that Accounts in a Trust bear interest at a
fixed rate and there is an increase in such prime rate or other designated
index, amounts payable as Monthly Interest on such Series of Certificates and
other amounts required to be funded out of collections of Finance Charge
Receivables with respect to such Series may be increased, whereas the amount of
collections of Finance Charge Receivables on such Accounts may not be similarly
increased.
CERTIFICATEHOLDER APPROVAL NOT REQUIRED FOR ISSUANCE OF NEW SERIES. Each
Trust, as a master trust, may issue Series and sell Purchased Interests from
time to time. While the Principal Terms of any Series will be specified in a
Series Supplement, the provisions of a Series Supplement and, therefore, the
terms of any additional Series, will not be subject to the prior review by, or
consent of, holders of the Certificates of any previously issued Series.
Similarly, the terms of any Purchased Interest will not be subject to the prior
review by, or consent of, holders of the Certificates of any previously issued
Series. The Principal Terms of any Series may include methods for determining
applicable investor percentages and allocating collections, provisions creating
different or additional security, provisions subordinating such Series to
another Series or other Series (if the Series Supplement relating to such Series
so permits) to such Series, and any other amendment or supplement to the related
Agreement which is made applicable only to such Series. The terms of any
Purchased Interest may also cover all of the above-mentioned matters. It is a
condition precedent to the issuance of any additional Series, or sale of a
Purchased Interest, by a Trust that each Rating Agency that has rated any
outstanding Series issued by such Trust deliver written confirmation to the
Trustee that such issuance or sale will not result in such Rating Agency
reducing or withdrawing its rating on any such outstanding Series. There can be
no assurance, however, that the Principal Terms of any other Series, including
any Series issued from time to time hereafter, or the terms of any Purchased
Interest might not have an impact on the timing and amount of payments received
by a Certificateholder of any other Series. See "Description of the Certificates
- -- Exchanges."
ADDITION OF TRUST ASSETS -- EFFECT ON CREDIT QUALITY. The Transferor
expects, and in some cases will be obligated, to designate Additional Accounts,
the Receivables in which will be conveyed to a Trust. In addition, the Agreement
provides that the Transferor may add Participations to a Trust. The designation
of Additional Accounts (other than Automatic Additional Accounts) and
Participations will be subject to the satisfaction of certain conditions
described herein under "Description of the Certificates -- Addition of Trust
Assets." However, Receivables in Automatic Additional Accounts will be conveyed
to the applicable Trust automatically upon their creation. All Additional
Accounts (including Automatic Additional Accounts) may include accounts
originated using criteria different from those which were applied to the
Accounts designated on the Cut-Off Date related to such Trust or to
previously-designated Additional Accounts, because such accounts were originated
at a different date or were acquired from another institution. Consequently,
there can be no assurance that Additional Accounts designated in the future will
be of the same credit quality as previously-designated Accounts. The varying
quality of Trust assets could affect the payment patterns and default experience
of such portfolio. If such effect on payment patterns is significant, a Partial
Amortization for one or more Series relating to such Trust could occur or a Pay
Out Event could occur with respect to each Series relating to such Trust, in
which case the Rapid Amortization Period or, if so specified in the related
Prospectus Supplement, the Rapid Accumulation Period, with respect to each such
Series would commence. Certificateholders of an affected Series might then
receive principal payments earlier than expected. In addition, if a decline in
the credit quality of the portfolio were significant enough, it could result in
reductions in payments to Certificateholders in an affected Series.
LIMITED CERTIFICATEHOLDER CONTROL OF ACTION UNDER AGREEMENT. The
Certificateholders will generally have limited control over the administration
of the related Trust. Subject to certain exceptions, the Certificateholders of
each Series may take certain actions, or direct certain actions to be taken,
under the related Agreement or Series Supplement. However, the related Agreement
or Series Supplement may provide that under certain circumstances the consent or
approval of a specified percentage of the aggregate Investor Interest of other
Series or of the Investor Interest of a specified Class of such other Series
will be required to direct certain actions, including requiring the appointment
of a successor Servicer following a Servicer
27
Default, amending the related Agreement in certain circumstances and directing a
repurchase of all outstanding Series upon the breach of certain representations
and warranties by the Transferor. Certificateholders of other Series may have
interests which do not coincide in any way with the interests of
Certificateholders of the subject Series. In addition, Certificateholders of
different Classes of the same Series may have interests which do not coincide.
In such instances, it may be difficult for the Certificateholders of such Series
to achieve the results from the vote that they desire.
LIMITATIONS OF CERTIFICATE RATING. Any rating assigned to the Certificates
of a Series or a Class by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Certificateholders of such Series or Class
will receive the payments of interest and principal required to be made under
the Agreement (including amounts payable from any Pre-Funding Account) and will
be based primarily on the value of the Receivables in the Trust and the
availability of any Enhancement with respect to such Series or Class. However,
any such rating will not, unless specifically so provided in the related
Prospectus Supplement with respect to any Class or Series offered hereby,
address the likelihood that the principal of any Certificates of such Class or
Series will be paid on a scheduled date. In addition, any such rating will not
address the possibility of the occurrence of a Pay Out Event with respect to
such Class or Series, the financial condition or creditworthiness of the
Transferor or the possibility of the imposition of United States withholding tax
with respect to non-U.S. Certificateholders. The rating will not be a
recommendation to purchase, hold or sell Certificates of such Series or Class,
and such rating will not comment as to the marketability of such Certificates,
any market price or suitability for a particular investor. There is no assurance
that any rating will remain for any given period of time or that any rating will
not be lowered or withdrawn entirely by a Rating Agency if in such Rating
Agency's judgment circumstances so warrant. The Transferor will request a rating
of the Certificates of each Series offered hereby by at least one Rating Agency.
There can be no assurance as to whether any rating agency not requested to rate
the Certificates will nonetheless issue a rating with respect to any Series of
Certificates or Class thereof. A rating assigned to any Series of Certificates
or Class thereof by a rating agency that has not been requested by the
Transferor to do so may be lower than the rating assigned by a Rating Agency
pursuant to the Transferor's request.
LIMITED CREDIT ENHANCEMENT. Although Credit Enhancement may be provided
with respect to a Series of Certificates or any of its Classes, the amount
available will generally be limited and subject to certain reductions. If the
amount available under any Credit Enhancement is reduced to zero,
Certificateholders of the Series or Class covered by such Credit Enhancement
will bear directly the credit and other risks associated with their undivided
interest in the Trust and will be more likely to suffer a loss on their
investment in the Certificates. See "Credit Enhancement."
CERTIFICATEHOLDERS' DIRECT EXERCISE OF RIGHTS LIMITED BY BOOK-ENTRY
REGISTRATION. The Certificates of Series offered hereby initially will, if so
specified in the related Prospectus Supplement, be represented by one or more
Certificates registered in the name of Cede, the nominee for DTC, and will not
be registered in the names of the Certificate Owners or their nominees. Unless
and until Definitive Certificates are issued for such a Series, Certificate
Owners relating to such Series will not be recognized by the Trustee as
Certificateholders, as that term will be used in each Agreement. Hence, until
such time, Certificate Owners will only be able to exercise the rights of
Certificateholders indirectly through DTC, Cedel or Euroclear and their
participating organizations. See "Description of the Certificates -- Book-Entry
Registration" and "-- Definitive Certificates."
LIMITED LIQUIDITY. It is anticipated that, to the extent permitted, the
underwriters of any Series of Certificates offered hereby will make a market in
such Certificates, but in no event will any such underwriter be under an
obligation to do so. There is no assurance that a secondary market will develop
with respect to the Certificates of any Series, or if it does develop, that it
will provide Certificateholders with liquidity of investment or that it will
continue for the life of such Certificates.
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THE TRUSTS
Each Trust will be formed in accordance with the laws of the State of
Delaware or New York pursuant to an Agreement. No Trust will be permitted to
engage in any business activity other than acquiring and holding Receivables,
issuing Series of Certificates and the related Transferor Certificate, making
payments thereon and engaging in related activities (including, with respect to
any Series, obtaining any Enhancement and entering into a related Enhancement
agreement). The Transferor will file a separate registration statement with the
Commission relating to Certificates to be offered by any New Trust.
FIRST OMNI'S CREDIT CARD ACTIVITIES
GENERAL
First Omni's predecessor, The First National Bank of Maryland ("First
National"), was one of the earliest Bank Americard issuers and entered the
credit card business in 1967. First Omni was formed in 1982 when First National
decided to separate the credit card business from its other businesses and
consequently moved its credit card business to Delaware. From 1967 until the
early 1990s, First National and First Omni relied primarily on the First
National branch network, direct mailings and acquisitions of existing portfolios
to generate new accounts. Since 1993, First Omni's strategy has focused on
direct mailings to pre-approved prospects and on the branch networks of its
affiliated banks, which include First National and The York Bank and Trust
Company, another subsidiary of the Corporation. In 1995, First Omni added
co-branding relationships to its existing array of account generation tools.
Co-branding presents an opportunity for First Omni to take advantage of
established relationships maintained by First National and other First Omni
affiliates.
The VISA and MasterCard credit card accounts may be used for four types of
transactions: credit card purchases, cash advances, balance transfer coupons and
convenience checks. Purchases occur when cardholders use credit cards to buy
goods and/or services. A cash advance is made when a credit card is used to
obtain cash from a financial institution or an automated teller machine.
Cardholders may also use convenience checks to (i) transfer balances from other
credit card accounts to their First Omni accounts and (ii) draw against their
VISA and MasterCard credit card accounts at any time. Amounts due with respect
to purchases, cash advances and convenience checks are included in the
Receivables.
In addition, cardholders in certain states are able to purchase insurance
against the inability to repay all or a portion of their account balances for
reasons such as involuntary unemployment, death, disability or accidental
death/dismemberment. Premiums for this insurance are charged to the account for
each monthly billing cycle. Such insurance premiums are included in the
Receivables transferred to the Trust and are treated as Principal Receivables.
Each cardholder is subject to an agreement with First Omni governing the
terms and conditions of the related VISA or MasterCard credit card account.
Pursuant to each such agreement, except as described herein or in any related
Prospectus Supplement, First Omni reserves the right, subject to notice as may
be required by law or such agreement, to add to, change or terminate any terms,
conditions, services or features of its VISA or MasterCard credit card accounts
at any time, including increasing or decreasing the periodic finance charges,
other charges or the minimum monthly payment requirements. The agreement with
each cardholder provides that First Omni may apply such changes, when
applicable, to current outstanding balances as well as to future transactions.
The cardholder can avoid certain changes in terms by giving timely written
notification to First Omni and avoid certain other changes by not using the
account or by using the account in accordance with its terms.
With respect to each Series of Certificates, the Receivables conveyed or to
be conveyed to a Trust by the Bank pursuant to the related Agreement have been
or will be generated from transactions made by holders of selected MasterCard
and VISA credit card accounts, including premium accounts and standard accounts,
from one or more specified programs (the "Identified Portfolio") within the Bank
Portfolio. Generally, both premium and standard accounts undergo the same credit
analysis, but premium accounts carry higher credit limits and offer a wider
variety of services to the cardholders. The Bank currently services the Bank
Portfolio
29
in the manner described in the related Prospectus Supplement. See "Risk Factors
- -- Transferor's Ability to Adversely Change Terms of the Receivables" for a
discussion of the effect of the Bank's ability to modify terms of the
Receivables after the initial issuance of any Series.
ACQUISITION AND USE OF CREDIT CARD ACCOUNTS
New credit card account marketing and solicitation is handled by the
Marketing Group. New credit card accounts are originated through both customer
inquiry and extensive direct mail solicitation programs. Customer inquiry
originations are generally initiated by applicants who pick up applications at a
branch of a First Omni affiliate bank or call First Omni and ask that an
application be sent to them. Direct mail solicitations are generally followed up
by telemarketing efforts.
First Omni believes that co-branding relationships with vendors of goods and
services, whereby First Omni obtains the exclusive right to market a credit card
bearing the vendor's brand to the vendor's customers, represents a significant
opportunity for growth of the Bank's account base. First Omni currently is a
party to two co-branding arrangements, and will continue to pursue such
relationships in the future. Of course, customers with relationships with First
Omni and its affiliates, including First National also will continue to be
targeted for new accounts. In addition, the Bank has and may in the future
acquire portfolios of credit card accounts originated by other institutions.
First Omni uses a prescreening process as its primary method of acquiring
new accounts. First Omni identifies potential prospects for preapproved
solicitations through lists obtained from (i) list vendors, (ii) co-branding
partners and (iii) credit reporting agencies. First Omni submits to the credit
bureaus its credit criteria and cutoff scores for those criteria to screen
prospects. Lists of individuals who meet the criteria are returned to the
mailing list vendor, and a preapproved offer for a credit card is made to those
individuals. An offeree's response to the solicitation is reviewed and
confirmed, and a credit card is issued. Where an individual's creditworthiness
undergoes rapid and substantial change following the initial prescreening, First
Omni may refuse to extend any credit to that individual despite the preapproved
offer. The primary factors considered in First Omni's credit criteria are (a)
the length of time that the individual's credit bureau file has been open, (b)
the number and types of credit transactions reflected in the file, (c) recency
and severity of delinquencies reflected in the file, (d) number of bankcard and
other revolving account transactions reflected in the file, (e) outstanding
balances under revolving accounts, (f) number of inquiries and (g) number of
recently opened credit relationships.
Credit applications are also processed through an automated application
processing system that uses a credit scorecard. A "score" is calculated for each
applicant, using information from the application and a credit bureau report
obtained through an independent credit reporting agency. The credit scorecard is
based upon a credit scoring model developed with Fair, Isaac and Company, Inc.
Those applications that are not accepted or rejected by the automated
application processing system are reviewed by a First Omni credit analyst who
makes a credit and limit assignment decision based on a review of (i) the score
generated by the credit scorecard, (ii) information contained in the
application, (iii) the independent credit report referred to above and (iv) an
analysis of the applicant's capacity to repay. The primary factors considered in
the credit scoring model include all of the factors included in the credit
criteria for preapproved solicitations, as well as (a) residential status, (b)
time at employer, (c) reported monthly income and (d) presence or absence of
existing credit references and checking or savings account references.
If First Omni acquires credit card accounts originally opened by another
institution, those accounts may have been opened using criteria different from
those used by First Omni and may not have been subject to the same level of
credit review as accounts originally established by First Omni. Portfolios of
credit card accounts purchased by First Omni from other credit card issuers may
be added to the Trusts from time to time.
INTERCHANGE
Creditors participating in the VISA and MasterCard associations receive
Interchange as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard systems, a portion of this Interchange in
connection with
30
cardholder charges for goods and services is passed from banks which clear the
transactions for merchants to credit card issuing banks. Interchange fees are
set annually by MasterCard and VISA and are based on the number of credit card
transactions and the amount charged per transaction. If provided in the related
Agreement, the Transferor will be required to transfer to the applicable Trust
the percentage of Interchange which is allocable to such Trust, determined on
the basis of the amount of cardholder charges for goods and services in the
Accounts designated for that Trust relative to the total amount of charges for
goods and services in all MasterCard and VISA credit card accounts owned by the
Transferor (or on such other basis as the related Prospectus Supplement may
specify). If so required to be transferred, Interchange arising under the
Accounts will be allocated to the related Certificates of any Series in the
manner provided in the related Prospectus Supplement, and will be (a) treated as
collections of Finance Charge Receivables and used to pay required monthly
payments including interest on the related Series of Certificates, (b) used to
pay all or a portion of the Servicing Fee to the Servicer, or (c) both, as
specified in the related Prospectus Supplement.
THE RECEIVABLES
The Receivables conveyed to each Trust will arise in Accounts selected from
the Bank Portfolio on the basis of criteria set forth in the related Agreement
as applied on the relevant Cut-Off Date and, with respect to Additional
Accounts, as of the related date of their designation (the "Trust Portfolio").
The Transferor will have the right (subject to certain limitations and
conditions set forth therein), and in some circumstances will be obligated, to
designate from time to time Additional Accounts and to transfer to the related
Trust all Receivables in such Additional Accounts, whether such Receivables are
then existing or thereafter created, or to transfer Participations in lieu of
such Receivables or in addition thereto. Any Additional Accounts designated
pursuant to an Agreement must be Eligible Accounts as of the date the Transferor
designates such accounts as Additional Accounts. Furthermore, pursuant to each
Agreement, the Transferor has the right (subject to certain limitations and
conditions) to designate certain Accounts as Removed Accounts and to require the
Trustee to reconvey all Receivables in such Removed Accounts to the Transferor,
whether such Receivables are then existing or thereafter created. Throughout the
term of each Trust, the related Accounts from which the Receivables arise will
be the Accounts designated by the Transferor on the relevant Cut-Off Date plus
any Additional Accounts minus any Removed Accounts. With respect to each Series
of Certificates, the Transferor will represent and warrant to the related Trust
that, as of the Closing Date and the date Receivables are conveyed to the Trust,
such Receivables meet certain eligibility requirements. See "Description of the
Certificates -- Representations and Warranties."
The Prospectus Supplement relating to each Series of Certificates will
provide certain information about the related Trust Portfolio as of the date
specified. Such information will include, but not be limited to, the amount of
Principal Receivables, the amount of Finance Charge Receivables, the range of
balances of the Accounts and the average thereof, the range of credit limits of
the Accounts and the average thereof, the range of ages of the Accounts and the
average thereof, the geographic distribution of the Accounts, the types of
Accounts and delinquency statistics relating to the Accounts.
MATURITY ASSUMPTIONS
Following the Revolving Period for each Series, collections of Principal
Receivables are expected to be distributed to the Certificateholders of that
Series or any specified Class thereof on each specified Distribution Date during
the Controlled Amortization Period or the Principal Amortization Period, or are
expected to be accumulated for payment to Certificateholders of that Series or
any specified Class thereof during an Accumulation Period and distributed on a
Scheduled Payment Date. However, if the Rapid Amortization Period commences,
collections of Principal Receivables will be paid to Certificateholders in the
manner described herein and in the related Prospectus Supplement. Further, if a
Partial Amortization occurs, certain funds available in the Excess Funding
Account may be paid to Certificateholders in the manner described herein and in
the related Prospectus Supplement. The related Prospectus Supplement will
specify when the Controlled Amortization Period, the Principal Amortization
Period or an Accumulation Period, as applicable, will commence, the principal
payments expected or available to be received or accumulated during such
31
Controlled Amortization Period, Principal Amortization Period or Accumulation
Period, or on the Scheduled Payment Date, as applicable, the manner and priority
of principal accumulations and payments among the Classes of a Series of
Certificates, the payment rate assumptions on which such expected principal
accumulations and payments are based and the Pay Out Events which, if any were
to occur, would lead to the commencement of a Rapid Amortization Period or, if
so specified in the related Prospectus Supplement, a Rapid Accumulation Period.
No assurance can be given, however, that collections on Principal
Receivables allocated to be paid to Certificateholders or the holders of any
specified Class thereof will be available for distribution or accumulation for
payment to Certificateholders on each Distribution Date during the Controlled
Amortization Period, the Principal Amortization Period or an Accumulation
Period, or on the Scheduled Payment Date, as applicable. See "Risk Factors --
Payment Other than at Expected Maturity."
USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates offered hereby
will be paid to the Transferor as consideration for the transfer of the
Receivables to the related Trust. The Transferor will use such proceeds for its
general corporate purposes, such as financing its credit card activities and
defraying its cost of corporate operations.
FIRST OMNI BANK, N.A. AND FIRST MARYLAND BANCORP
First Omni is a national banking association located in Millsboro, Delaware.
It provides nationwide retail bank card services. First Omni issues credit cards
both directly and as agent for other banks. First Omni was created in 1982 to
strengthen the credit card business of First National. First Omni and First
National are both wholly-owned subsidiaries of First Maryland Bancorp.
The Corporation was formed in 1973 as a multibank holding company registered
under the Bank Holding Company Act of 1956, as amended (the "Bank Holding
Company Act"), and maintains its headquarters in Baltimore, Maryland. The
Prospectus Supplement for each Series of Certificates will provide additional
information, including financial information, relating to First Omni, First
Omni's credit card activities and the Corporation. Since 1989, the Corporation
has been owned by Allied Irish Banks, p.l.c. ("AIB"), an Irish banking
corporation which owns 100% of the common stock and 99% of the voting power of
the Corporation. AIB is the largest banking corporation organized under the laws
of Ireland, based on total assets at December 31, 1995. AIB is a registered bank
holding company under the Bank Holding Company Act.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued in Series. Each Series will represent an
interest in the specified Trust other than the interests represented by any
other Series of Certificates issued by such Trust (which may include Series
offered pursuant to this Prospectus) and the Transferor Certificate. Each Series
will be issued pursuant to an Agreement entered into by the Bank and the Trustee
named in the related Prospectus Supplement, a copy of the form of which is filed
as an exhibit to the Registration Statement of which this Prospectus is a part,
and a Series Supplement to the Agreement. The Prospectus Supplement for each
Series will describe any provisions of the particular Agreement relating to such
Series which may differ materially from the Agreement filed as an exhibit to the
Registration Statement. The following summaries describe certain provisions
common to each Series of Certificates. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the related Agreement and Series Supplement.
GENERAL
The Certificates of each Series will represent undivided interests in
certain assets of the related Trust, including the right to the applicable
Investor Percentage of all cardholder payments on the Receivables in such Trust.
The Investor Interest for each Series of Certificates on any date will generally
be equal to the
32
initial Investor Interest as of the related Closing Date for such Series
(increased by the principal balance of any Certificates of such Series issued
after the Closing Date for such Series) minus the amount of principal paid to
the related Certificateholders prior to such date and minus the amount of
unreimbursed Investor Charge-Offs with respect to such Certificates prior to
such date, except that the Investor Interest of any pre-funded Series may
increase upon the transfer of additional Principal Receivables to the applicable
Trust or the reduction of the Investor Interest or the Adjusted Investor
Interest of another Series. If so specified in the Prospectus Supplement
relating to any Series of Certificates, under certain circumstances the Investor
Interest may be further adjusted by the amount of principal allocated to
Certificateholders, the funds on deposit in any specified account, and any other
amount specified in the related Prospectus Supplement.
Each Series of Certificates may consist of one or more Classes, one or more
of which may be Senior Certificates or Subordinated Certificates. Each Class of
a Series will evidence the right to receive a specified portion of each
distribution of principal or interest or both. The Investor Interest with
respect to a Series with more than one Class will be allocated among the Classes
as described in the related Prospectus Supplement. The Certificates of a Class
may differ from Certificates of other Classes of the same Series in, among other
things, the amounts allocated to principal payments, maturity date, Certificate
Rate and the availability of Enhancement.
For each Series of Certificates, payments of interest and principal will be
made on Distribution Dates specified in the related Prospectus Supplement to
Certificateholders in whose names the Certificates were registered on the record
dates (each, a "Record Date") specified in the related Prospectus Supplement.
Interest will be distributed to Certificateholders in the amounts, for the
periods and on the dates specified in the related Prospectus Supplement.
For each Series of Certificates, the Transferor initially will own the
Transferor Certificate. The Transferor Certificate will represent the undivided
interest in each Trust not represented by the Certificates issued and
outstanding under such Trust or the rights, if any, of any Credit Enhancement
Providers to receive payments from each Trust. The holder of the Transferor
Certificate will have the right to a percentage (the "Transferor Percentage") of
all cardholder payments from the Receivables in the Trust. If provided in the
related Agreement and Prospectus Supplement, the Transferor Certificate may be
transferred in whole or in part subject to the limitations and conditions set
forth therein. See "-- Certain Matters Regarding the Transferor and the
Servicer."
During the Revolving Period with respect to each Series of Certificates, the
amount of the Investor Interest for that Series will remain constant except as
described in "-- Defaulted Receivables; Incentive Payments and Fraudulent
Charges; Investor Charge-Offs" (which describes circumstances in which the
Investor Interest will be reduced during the Revolving Period) and "-- Funding
Period" (which describes circumstances in which the Investor Interest will be
increased during a Funding Period which would coincide with the Revolving Period
for the affected Series). The amount of Principal Receivables in each 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, to
reflect the changes in the amount of the Principal Receivables in the Trust (and
amounts, if any, on deposit in the Excess Funding Account). When a Series is
amortizing, the Investor Interest of such Series will decline as customer
payments of Principal Receivables are collected and distributed to or
accumulated for distribution to the Certificateholders. As a result, the
Transferor Interest will generally increase to reflect reductions in the
Investor Interest for such Series and will also change to reflect the variations
in the amount of Principal Receivables in the related Trust. The Transferor
Interest in each Trust may also be reduced as the result of an Exchange. See "--
Exchanges."
Certificates of each Series initially will be represented by certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Transferor, the "Depository") except as set forth
below. See "-- Definitive Certificates." With respect to each Series of
Certificates, beneficial interests in the Certificates will be available for
purchase in minimum denominations as specified in the related Prospectus
Supplement (or, if not so specified, in minimum denominations of $1,000 and
integral multiples thereof). As to any Series of Certificates issued in
book-entry form, the Transferor has been informed by DTC that DTC's nominee will
be Cede. Accordingly, Cede is expected to be the holder of
33
record of each such Series of Certificates. No Certificate Owner acquiring an
interest in such Certificates will be entitled to receive a certificate
representing such person's interest in the Certificates. Unless and until
Definitive Certificates are issued for any Series under the limited
circumstances described herein, all references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
DTC Participants, and all references herein to distributions, notices, reports
and statements to Certificateholders shall refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the
Certificates, as the case may be, for distribution to Certificate Owners in
accordance with DTC procedures. See "-- Book-Entry Registration" and "--
Definitive Certificates."
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Certificates of such Series, or all or a
portion of any Class thereof, on the Luxembourg Stock Exchange or any other
specified exchange.
BOOK-ENTRY REGISTRATION
With respect to each Series of Certificates issued in book-entry form,
Certificateholders may hold their Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositories
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities for its Participants ("DTC Participants") and facilitates the
clearance and settlement among DTC Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic book-entry
changes in DTC Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. DTC Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and DTC Participants are on file with the Securities and Exchange Commission.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities
34
settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Purchases of Certificates under the DTC system must be made by or through
DTC Participants, which will receive a credit for the Certificates on DTC's
records. The ownership interest of each actual Certificate Owner is in turn to
be recorded on the DTC Participants' and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchase, but Certificate Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect Participant through which the
Certificate Owner entered into the transaction. Transfers of ownership interests
in the Certificates are to be accomplished by entries made on the books of DTC
Participants acting on behalf of Certificate Owners. Certificate Owners will not
receive certificates representing their ownership interest in Certificates,
except in the event that use of the book-entry system for the Certificates is
discontinued.
To facilitate subsequent transfers, all Certificates deposited by DTC
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Certificates with DTC and their registration in the name of Cede
& Co. effects no change in beneficial ownership. DTC has no knowledge of the
actual Certificate Owners of the Certificates; DTC's records reflect only the
identity of the DTC Participants to whose accounts such Certificates are
credited, which may or may not be the Certificate Owners. The DTC Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants, and by DTC Participants and
Indirect Participants to Certificate Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to
Certificates. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns Cede & Co.'s
consenting or voting rights to those DTC Participants to whose accounts the
Certificates are credited on the record date (identified in a listing attached
thereto).
Principal and interest payments on the Certificates will be made to DTC.
DTC's practice is to credit Participants' accounts on the applicable
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such Distribution Date. Payments by DTC Participants to Certificate Owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name" and will be the responsibility of such DTC Participant and not
of DTC, the Trustee or the Transferor, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal and
interest to DTC is the responsibility of the Trustee, disbursement of such
payments to DTC Participants shall be the responsibility of DTC, and
disbursement of such payments to Certificate Owners shall be the responsibility
of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Certificates at any time by giving reasonable notice to the
Transferor or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Certificates are
required to be printed and delivered. The Transferor may decide to discontinue
use of the system of book-entry transfers through DTC (or a successor securities
depository). In that event, Definitive Certificates will be delivered to
Certificateholders. See "-- Definitive Certificates."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Transferor believes to be reliable, but
the Transferor takes no responsibility for the accuracy thereof.
35
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 32 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulation by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of any Series
of Certificates. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 32 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in 25 countries generally similar to the arrangements for
cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, Societe Cooperative, a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative Board
establishes policy for the Euroclear System. 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 Certificates. Indirect access to the Euroclear System is also
available to other firms that maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System (collectively, the "Terms
and Conditions"). The Terms and Conditions govern transfers of securities and
cash within the Euroclear System, withdrawal of securities and cash from the
Euroclear System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants and has no record of or relationship
with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "U.S. Federal Income Tax Consequences." Cedel or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a
Certificateholder under a related Agreement on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
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Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, Cedel
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
If so specified in the related Prospectus Supplement, the Certificates of
each Series will be initially issued as Definitive Certificates in fully
registered, certificated form to Certificate Owners or their nominees rather
than to DTC or its nominee. If the related Prospectus Supplement states that a
Series will be issued in book-entry form, then Definitive Certificates will be
issued to Certificate Owners or their nominees only if (i) the Transferor
advises the Trustee for such Series in writing that DTC is no longer willing or
able to discharge properly its responsibilities as Depository with respect to
such Series of Certificates, and the Trustee or the Transferor is unable to
locate a qualified successor, (ii) the Transferor, at its option, advises the
Trustee in writing that it elects to terminate the book-entry system through DTC
or (iii) after the occurrence of a Servicer Default, Certificate Owners
representing not less than 50% (or such other percentage specified in the
related Prospectus Supplement) of the Investor Interest advise the Trustee and
DTC through DTC 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 Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all DTC Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificate representing the Certificates and instructions for
reregistration, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as holders under the Agreement ("Holders").
Distribution of principal and interest on the Certificates will be made by
the Trustee directly to Holders of Definitive Certificates in accordance with
the procedures set forth herein and in the Agreement. Interest payments and any
principal payments on each Distribution Date will be made to Holders in whose
names the Definitive Certificates were registered at the close of business on
the related Record Date. The final payment on any Certificate (whether
Definitive Certificates or the Certificates registered in the name of Cede
representing the Certificates), will be made only upon presentation and
surrender of such Certificate at the office or agency specified in the notice of
final distribution to Certificateholders. The Trustee will provide such notice
to registered Certificateholders not later than the fifth day of the month of
such final distributions.
Definitive Certificates will be transferable and exchangeable at the offices
of the Transfer Agent and Registrar, which shall initially be the Trustee. No
service charge will be imposed for any registration of transfer or exchange, but
the Transfer Agent and Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith. The
Transfer Agent and Registrar shall not be required to register the transfer or
exchange of Definitive Certificates for a period of fifteen days preceding the
due date for any payment with respect to such Definitive Certificates.
INTEREST PAYMENTS
For each Series of Certificates and Class thereof, interest will accrue from
the date specified in the applicable Prospectus Supplement on the applicable
Investor Interest at the applicable Certificate Rate, which may be a fixed,
floating or other type of rate as specified in the related Prospectus
Supplement. Interest will be distributed to Certificateholders on the
Distribution Dates specified in the related Prospectus Supplement. Interest
payments on any Distribution Date will be funded from collections of Finance
Charge Receivables allocated to the Investor Interest during the preceding
Monthly Period or Periods and may be funded from certain investment earnings on
funds held in accounts of the related Trust and from any applicable Credit
Enhancement, if necessary, or certain other amounts as specified in the related
Prospectus Supplement. If the Distribution Dates for payment of interest for a
Series or Class occur less frequently than monthly, such collections or other
amounts (or the portion thereof allocable to such Class) may be deposited in one
or more trust accounts (each, an "Interest Funding Account") pending
distribution to the Certificateholders of such Series or Class, as described in
the related Prospectus Supplement. If a Series has more than one Class of
Certificates, each such Class may have a separate Interest Funding Account. The
Prospectus
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Supplement relating to each Series of Certificates will describe the amounts and
sources of interest payments to be made; the Certificate Rate for each Class
thereof; for a Series or Class thereof bearing interest at a floating
Certificate Rate, the initial Certificate Rate, the dates and the manner for
determining subsequent Certificate Rates, and the formula, index or other method
by which such Certificate Rates are determined; and any limitations on any such
Certificate Rate.
PRINCIPAL PAYMENTS
Generally, during the Revolving Period for each Series of Certificates
(which begins on the related Closing Date and ends on the day before an
Amortization Period or Accumulation Period begins), no principal payments will
be made to the Certificateholders of such Series, although principal payments
may be made to Certificateholders of a Series during the Revolving Period, in
connection with a Partial Amortization or otherwise, if so specified in the
related Prospectus Supplement. During the Controlled Amortization Period or
Principal Amortization Period, as applicable, which will be scheduled to begin
on the date specified in, or determined in the manner specified in, the related
Prospectus Supplement, and during the Rapid Amortization Period, which will
begin upon the occurrence of a Pay Out Event or, if so specified in the
Prospectus Supplement, following the Rapid Accumulation Period, principal will
be paid to the Certificateholders in the amounts and on Distribution Dates
specified in the related Prospectus Supplement. During an Accumulation Period,
principal will be accumulated in a Principal Funding Account for later
distribution to Certificateholders on the Scheduled Payment Date in the amounts
specified in the related Prospectus Supplement. Principal payments for any
Series or Class thereof will be funded from collections of Principal Receivables
received during the related Monthly Period or Periods as specified in the
related Prospectus Supplement and allocated to such Series or Class, in certain
circumstances from amounts on deposit in the Excess Funding Account and from
certain other sources specified in the related Prospectus Supplement. In the
case of a Series with more than one Class of Certificates, the
Certificateholders of one or more Classes may receive payments of principal at
different times. The related Prospectus Supplement will describe the manner,
timing and priority of payments of principal to Certificateholders of each
Class.
Funds on deposit in any Principal Funding Account applicable to a Series may
be subject to a guaranteed rate agreement or guaranteed investment contract or
other arrangement specified in the related Prospectus Supplement intended to
assure a minimum rate of return on the investment of such funds. In order to
enhance the likelihood of the payment in full of the principal amount of a
Series of Certificates or Class thereof at the end of an Accumulation Period,
such Series of Certificates or Class thereof may be subject to a principal
payment guaranty or other similar arrangement specified in the related
Prospectus Supplement.
TRANSFER AND ASSIGNMENT OF RECEIVABLES
With respect to any Trust, the Transferor will transfer and assign at the
time of formation of each such Trust all of its right, title and interest in and
to the Receivables in the related Accounts and all Receivables thereafter
created in such Accounts.
In connection with each transfer of Receivables to a Trust, the Transferor
will indicate in its computer files that the related Receivables have been
conveyed to such Trust. In addition, the Transferor will provide to the Trustee
for each Trust computer files or microfiche lists containing a true and complete
list of the related Accounts, identified by account number and by total
outstanding balance on the date of transfer. The Transferor will not deliver to
the related 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 Transferor or the Servicer are not and will
not be segregated by the Transferor or the Servicer 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 transfer of the Receivables to
a Trust, but the computer records of the Transferor are and will be required to
be marked to evidence such transfer. The Transferor will file with respect to
each Trust Uniform Commercial Code financing statements with respect to the
Receivables meeting the requirements of applicable state law. See "Risk Factors
- -- Transfer of Receivables" and "Certain Legal Aspects of the Receivables --
Transfer of Receivables."
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EXCHANGES
Each Agreement will authorize the related Trustee to issue two types of
certificates: (i) one or more Series of Certificates which are transferable and
have the characteristics described below; and (ii) the Transferor Certificate,
which evidences the Transferor Interest and which will initially be held by the
Transferor and will be transferable only as provided in the related Agreement.
The related Prospectus Supplement may also provide that, pursuant to any one or
more Series Supplements (and subject to any applicable requirement under the
Exchange Act and the rules and regulations thereunder, including Rule 13e-4),
the Transferor Certificate, the Certificates evidencing any Series of
Certificates issued by the related Trust or both may be tendered, to the related
Trustee in exchange for one or more new Series (which may include Series offered
pursuant to this Prospectus) and, if the Transferor Certificate is tendered, a
reissued Transferor Certificate. Pursuant to each Agreement, the Transferor may
define, with respect to any newly issued Series, all Principal Terms of such new
Series. Upon the issuance of an additional Series of Certificates, none of the
Transferor, the Servicer, the Trustee or the related Trust will be required or
will intend to obtain the consent of any Certificateholder of any other Series
previously issued by such Trust. However, as a condition of an Exchange, the
Transferor will deliver to the Trustee written confirmation that the Exchange
will not result in the reduction or withdrawal by any Rating Agency of its
rating of any outstanding Series. The Transferor may offer any Series under a
Disclosure Document in offerings pursuant to this Prospectus or in transactions
either registered under the Securities Act or exempt from registration
thereunder directly, through one or more other underwriters or placement agents,
in fixed-price offerings or in negotiated transactions or otherwise.
The holder of the Transferor Certificate may perform Exchanges and define
Principal Terms such that each Series issued under a Trust has a period during
which amortization or accumulation of the principal amount thereof is intended
to occur which may have a different length and begin on a different date than
such period for any other Series. Further, one or more Series may be in their
amortization or accumulation periods while other Series are not. Moreover, each
Series may have the benefit of a Credit Enhancement which is available only to
such Series. Under the related Agreement, the Trustee shall hold any such form
of Credit Enhancement only on behalf of the Series to which it relates. The
holder of the Transferor Certificate may deliver a different form of Credit
Enhancement agreement with respect to any Series. The holder of the Transferor
Certificate may specify different certificate rates and monthly servicing fees
with respect to each Series (or a particular Class within such Series). The
holder of the Transferor Certificate will also have the option under the related
Agreement to vary between Series the terms upon which a Series (or a particular
Class within such Series) may be repurchased by the Transferor or remarketed to
other investors. There will be no limit to the number of Exchanges that may be
performed under a related Agreement.
An Exchange may only occur upon the satisfaction of certain conditions
provided in the related Agreement. Under each Agreement, the holder of the
Transferor Certificate may perform an Exchange by notifying the Trustee at least
three days in advance of the date upon which the Exchange is to occur stating
the Series to be issued on the date of the Exchange and, with respect to each
such Series (and, if applicable, each Class thereof): (1) its initial principal
amount (or method for calculating such amount), (2) its certificate rate (or
method of calculating such rate) and (3) the provider of Credit Enhancement, if
any, which is expected to provide support with respect to it. Each Agreement
will provide that on the date of the Exchange the Trustee will authenticate any
such Series only upon delivery to it of at least the following: (i) a Series
Supplement specifying the Principal Terms of such Series; (ii) (a) an opinion of
counsel to the effect that the certificates of such Series will be characterized
as indebtedness for Federal income tax purposes, unless the related Series
Supplement indicates that such opinion will not be provided, and (b) a Tax
Opinion; (iii) if required by the related Series Supplement, the form of Credit
Enhancement; (iv) if Credit Enhancement is required by the Series Supplement, an
appropriate Credit Enhancement agreement executed by the Transferor and the
Credit Enhancement Provider; (v) written confirmation from each Rating Agency
that the Exchange will not result in such Rating Agency's reducing or
withdrawing its rating on any then outstanding Series rated by it; (vi) an
officer's certificate of the Transferor to the effect that after giving effect
to the Exchange the Transferor would not be required to add Additional Accounts
pursuant to the related Agreement and the Transferor Interest would be at least
equal to the Minimum Transferor Interest; and
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(vii) the existing Transferor Certificate and, if applicable, the certificates
representing the Series to be exchanged. Upon satisfaction of such conditions,
the Trustee will cancel the existing Transferor Certificate and the certificates
of the exchanged Series, if applicable, and authenticate the new Series and a
new Transferor Certificate.
The Transferor also may from time to time cause the Trustee to sell
Purchased Interests to one or more purchasers. Any Purchased Interest will
represent an interest in the applicable Trust's assets similar to the interest
of a Series of Certificates. No Series will be subordinated to any Purchased
Interest, and no Purchased Interest will have any interest in the Enhancement or
series accounts specified for any Series, except as specified in the Prospectus
Supplement relating to that Series. Any such sale will take place pursuant to
one or more agreements which will specify terms similar to Principal Terms for
the applicable Purchased Interests and may grant the purchasers of such
interests notice and consultation rights with respect to rights or actions of
the Trustee. Any sale of Purchased Interests in the assets of a Trust will be
subject to the satisfaction of the same conditions (including Rating Agency
confirmations) as for an Exchange as appropriately adjusted to apply to the
relevant Purchased Interest rather than an Exchange.
REPRESENTATIONS AND WARRANTIES
In connection with the issuance of any Series of Certificates, the
Transferor will represent and warrant in the related Agreement to the effect
that (a) as of the Closing Date, the Transferor was duly incorporated and in
good standing and that it has the authority to consummate the transactions
contemplated by the related Agreement and (b) as of the relevant Cut-Off Date
(or as of the date of the designation of Additional Accounts), each Account was
an Eligible Account. If so provided in the related Prospectus Supplement, if (i)
any of these representations and warranties proves to have been incorrect in any
material respect when made, and continues to be incorrect for 60 days after
notice to the Transferor by the related Trustee or to the Transferor and the
related Trustee by the Certificateholders holding more than 50% of the Investor
Interest of the related Series, and (ii) as a result the interests of the
Certificateholders are materially and adversely affected, and continue to be
materially and adversely affected during such period, then the Trustee or
Certificateholders holding more than 50% of the Investor Interest may give
notice to the Transferor (and to the related Trustee in the latter instance)
declaring that a Pay Out Event has occurred, thereby commencing the Rapid
Amortization Period or, if so specified in the related Prospectus Supplement,
the Rapid Accumulation Period.
The Transferor will also represent and warrant in the related Agreement to
the effect that (a) as of the Closing Date of the initial Series of Certificates
issued by such Trust, each of the related Receivables then existing is an
Eligible Receivable (as defined below) and (b) as of the date of creation of any
new related Receivable, such Receivable is an Eligible Receivable and the
representation and warranty set forth in clause (b) in the immediately following
paragraph is true and correct with respect to such Receivable. In the event (i)
of a breach of any representation and warranty described in this paragraph,
within 60 days, or such longer period as may be agreed to by the Trustee, of the
earlier to occur of the discovery of such breach by the Transferor or Servicer
or receipt by the Transferor of written notice of such breach given by the
Trustee, or, with respect to certain breaches relating to prior liens,
immediately upon the earlier to occur of such discovery or notice and (ii) that
as a result of such breach, the Receivables in the related Accounts are charged
off as uncollectible, the Trust's rights in, to or under the Receivables or its
proceeds are impaired or the proceeds of such Receivables are not available for
any reason to the Trust free and clear of any lien, the Transferor will accept
reassignment of each Principal Receivable as to which such breach relates (an
"Ineligible Receivable") on the terms and conditions set forth below. No such
reassignment will be required to be made with respect to an Ineligible
Receivable if, on any day within the applicable period (or such longer period as
may be agreed to by the Trustee), the representations and warranties with
respect to that Ineligible Receivable are true and correct in all material
respects. The Transferor will accept reassignment of Ineligible Receivables by
directing the Servicer to deduct the amount of each Ineligible Receivable from
the aggregate amount of Principal Receivables used to calculate the Transferor
Interest. If the exclusion of an Ineligible Receivable from the calculation of
the Transferor Interest would cause the Transferor Interest to be less than the
Minimum Transferor Interest, on the date of reassignment of such Ineligible
Receivable the Transferor will make a deposit in the Excess Funding Account in
immediately available funds in an amount equal to the
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amount by which the Transferor Interest would be reduced below the Minimum
Transferor Interest. Any such deduction or deposit shall be considered a
repayment in full of the Ineligible Receivable. The obligation of the Transferor
to accept reassignment of any Ineligible Receivable is the sole remedy
respecting any breach of the representations and warranties set forth in this
paragraph with respect to such Receivable available to the Certificateholders or
the Trustee on behalf of Certificateholders.
The Transferor will also represent and warrant in the related Agreement to
the effect that as of the Closing Date of the initial Series of Certificates
issued by such Trust (a) the related Agreement will constitute a legal, valid
and binding obligation of the Transferor and (b) the transfer of Receivables by
it to the Trust under the Agreement will constitute either a valid transfer and
assignment to the Trust of all right, title and interest of the Transferor in
and to the Receivables (other than Receivables in Additional Accounts), whether
then existing or thereafter created and the proceeds thereof (including amounts
in any of the accounts established for the benefit of Certificateholders) or the
grant of a first priority perfected security interest in such Receivables
(except for certain tax and other governmental liens) and the proceeds thereof
(including amounts in any of the accounts established for the benefit of
Certificateholders), which is effective as to each such Receivable upon the
creation thereof. In the event of a breach of any of the representations and
warranties described in this paragraph which has a material adverse effect on
the interest of the Certificateholders in the Receivables, either the Trustee or
the Holders of Certificates evidencing undivided interests in the Trust
aggregating more than 50% of the aggregate Investor Interest of all Series
outstanding under such Trust may direct the Transferor to accept reassignment of
the Trust Portfolio within 60 days of such notice, or within such longer period
specified in such notice. The Transferor will be obligated to accept
reassignment of such Receivables on a Distribution Date occurring within such
applicable period. Such reassignment will not be required to be made, however,
if at any time during such applicable period, or such longer period, the
representations and warranties are true and correct in all material respects.
The deposit amount for such reassignment will equal the Investor Interest and
Enhancement Invested Amount, if any, plus accrued and unpaid interest for each
Series outstanding under such Trust on the last day of the Monthly Period
preceding the Distribution Date on which the reassignment is scheduled to be
made less the amount, if any, previously allocated for payment of principal and
interest to such Certificateholders or such holders of the Enhancement Invested
Amount or the Collateral Interest, if any, on such Distribution Date. The
payment of the reassignment deposit amount and the transfer of all other amounts
deposited for the preceding month in the Distribution Account will be considered
a payment in full of the Investor Interest and the Enhancement Invested Amount,
if any, for each such Series required to be repurchased and will be distributed
upon presentation and surrender of the Certificates for each such Series. The
obligation of the Transferor to make any such deposit will constitute the sole
remedy respecting a breach of the representations and warranties available to
the Trustee or Certificateholders.
With respect to each Series of Certificates, an "Eligible Account" means, as
of the relevant Cut-Off Date (or, with respect to Additional Accounts, as of
their date of designation for inclusion in the related Trust), each Account
owned by the Transferor (a) which was in existence and maintained with the
Transferor, (b) which is payable in United States dollars, (c) the customer of
which has provided, as his most recent billing address, an address located in
the United States or its territories or possessions (except that up to 3% of the
aggregate number of all Accounts as of the Cut-Off Date or any date on which
Additional Accounts are designated for inclusion in a Trust may have customers
with billing addresses located outside the United States, its territories and
possessions), (d) which has not been classified by the Transferor as cancelled,
counterfeit, fraudulent, stolen or lost (except that Eligible Accounts may
include Accounts identified by the applicable customers as having balances
incurred as a result of fraudulent use or as to which the credit cards have been
identified as lost or stolen if (1) the Transferor appropriately reflects the
balance of the applicable Receivables on its books and records in accordance
with its customary practices and (2) charging privileges have been cancelled and
are not reinstated), (e) which has either been originated by the Transferor or
acquired by the Transferor from other institutions, (f) which has not been
charged off by the Transferor in its customary and usual manner for charging off
such Account as of the Cut-Off Date and, with respect to Additional Accounts, as
of their date of designation for inclusion in the Trust and (g) which satisfies
any additional requirements specified in the related Prospectus Supplement.
Under each Agreement, the definition of Eligible Account may be changed by
amendment to such Agreement without the consent of the
41
related Certificateholders if (i) the Transferor delivers to the Trustee a
certificate of an authorized officer to the effect that, in the reasonable
belief of the Transferor, such amendment will not as of the date of such
amendment adversely affect in any material respect the interest of such
Certificateholders, and (ii) such amendment will not result in a withdrawal or
reduction of the rating of any outstanding Series under the related Trust.
With respect to each Series of Certificates, an "Eligible Receivable" means
each Receivable (a) which has arisen under an Eligible Account, (b) which was
created in compliance, in all material respects, with all requirements of law
applicable to the Transferor, and pursuant to a credit card agreement which
complied in all material respects with all requirements of law applicable to the
Transferor, (c) with respect to which all consents, licenses or authorizations
of, or registrations with, any governmental authority required to be obtained or
given by the Transferor in connection with the creation of such Receivable or
the execution, delivery, creation and performance by the Transferor of the
related credit card agreement have been duly obtained or given and are in full
force and effect as of the date of the creation of such Receivable, (d) as to
which, at the time of its creation, the Transferor or the related Trust had good
and marketable title free and clear of all liens and security interests arising
under or through the Transferor (other than certain tax liens for taxes not then
due or which the Transferor is contesting and any other lien that is released or
terminated at or before the time that the receivable is transferred to the
Trust), (e) which is the legal, valid and binding payment obligation of the
obligor thereon, legally enforceable against such obligor in accordance with its
terms (with certain bankruptcy-related exceptions), (f) which constitutes an
"account" or a "general intangible" under Article 9 of the Uniform Commercial
Code as then in effect in the State of Delaware and (g) which satisfies any
additional requirements specified in the related Prospectus Supplement.
The Trustee will not make any initial or periodic general examination of the
Receivables or any records relating to the Receivables for the purpose of
establishing the presence or absence of defects, compliance with the
Transferor's representations and warranties or for any other purpose. The
Servicer, however, will deliver to the Trustee on or before March 31 of each
year (or such other date specified in the related Prospectus Supplement) an
opinion of counsel with respect to the validity of the security interest of the
Trust in and to the Receivables and certain other components of the Trust.
ADDITION OF TRUST ASSETS
As described above under "The Receivables," the Transferor will have the
right to designate for each Trust, from time to time, Additional Accounts to be
included as Accounts with respect to that Trust. In addition, the Transferor
will be required to designate Additional Accounts under the circumstances and in
the amounts specified in the related Prospectus Supplement. The Transferor's
designation of Additional Accounts generally will be subject to the satisfaction
of the conditions described below. However, the Transferor may from time to time
designate to the related Trust accounts ("Automatic Additional Accounts")
generated in the ordinary course of business of the Transferor as part of the
Identified Portfolio, subject to limitations on the amount of Automatic
Additional Accounts that may be designated for a Trust during a period of time.
Receivables in Automatic Additional Accounts will be conveyed to the applicable
Trust automatically upon their creation. The Transferor will convey to the
related Trust its interest in all Receivables of Additional Accounts, whether
such Receivables are then existing or thereafter created.
Each Additional Account (including Automatic Additional Accounts) must be an
Eligible Account at the time of its designation. However, Additional Accounts
may not be of the same credit quality as the initial Accounts. Additional
Accounts may have been originated by the Transferor using credit criteria
different from those which were applied by the Transferor to the initial
Accounts or may have been acquired by the Transferor from an institution which
may have had different credit criteria.
In addition to or in lieu of Additional Accounts, the Transferor under the
Agreement and each New Agreement will be permitted to add to the related Trust
participations or trust certificates representing undivided interests in a pool
of assets primarily consisting of receivables arising under consumer revolving
credit card accounts and collections thereon ("Participations"). Participations
may be evidenced by one or more certificates of ownership issued under a
separate pooling and servicing agreement or similar agreement (a "Participation
Agreement") entered into by the Transferor which entitles the certificateholder
to
42
receive percentages of collections generated by the pool of assets subject to
such Participation Agreement from time to time and to certain other rights and
remedies specified therein. Participations may have their own credit
enhancement, pay out events, servicing obligations and servicer defaults, all of
which are likely to be enforceable by a separate trustee under the Participation
Agreement and may be different from those specified herein. The rights and
remedies of the related Trust as the holder of a Participation (and therefore
the Certificateholders) will be subject to all the terms and provisions of the
related Participation Agreement. The Agreement and each New Agreement may be
amended to permit the addition of a Participation in a Trust without the consent
of the related Certificateholders if (i) the Transferor delivers to the Trustee
a certificate of an authorized officer to the effect that, in the reasonable
belief of the Transferor, such amendment will not as of the date of such
amendment adversely affect in any material respect the interest of such
Certificateholders, and (ii) such amendment will not result in a withdrawal or
reduction of the rating of any outstanding Series under the related Trust.
A conveyance by the Transferor to a Trust of Receivables in Additional
Accounts (other than Automatic Additional Accounts) or Participations is subject
to the following conditions, among others: (i) the Transferor shall give the
Trustee, each Rating Agency and the Servicer written notice that such Additional
Accounts or Participations will be included, which notice shall specify the
approximate aggregate amount of the Receivables or interests therein to be
transferred; (ii) the Transferor shall have delivered to the Trustee a written
assignment (including an acceptance by the Trustee on behalf of the Trust for
the benefit of the Certificateholders) as provided in the Agreement relating to
such Additional Accounts or Participations (the "Assignment") and, the
Transferor shall have delivered to the Trustee a computer file or microfiche
list, dated the date of such Assignment, containing a true and complete list of
such Additional Accounts or Participations; (iii) the Transferor shall represent
and warrant that (a) each Additional Account is, as of the Addition Date, an
Eligible Account, and each Receivable in such Additional Account is, as of the
Addition Date, an Eligible Receivable, (b) no selection procedures believed by
the Transferor to be materially adverse to the interests of the
Certificateholders were utilized in selecting the Additional Accounts from the
available Eligible Accounts from the Bank Portfolio and (c) as of the Addition
Date, the Transferor is not insolvent; (iv) the Transferor shall deliver certain
opinions of counsel with respect to the transfer of the Receivables in the
Additional Accounts or the Participations to the Trust; and (v) under certain
circumstances with respect to Additional Accounts, and in all cases with respect
to Participations, the addition of such Additional Accounts or Participations
will not result in a withdrawal or reduction of the rating of any outstanding
Series under the related Trust.
In addition to the periodic reports otherwise required to be filed by the
Servicer with the Commission pursuant to the Exchange Act, the Servicer intends
to file, on behalf of each Trust, a Report on Form 8-K with respect to any
addition to a Trust of Receivables in Additional Accounts or Participations that
would have a material effect on the composition of the assets of such Trust.
REMOVAL OF ACCOUNTS
The Transferor may, but shall not be obligated to, designate from time to
time certain Accounts to be Removed Accounts, all Receivables in which shall be
subject to deletion and removal from the related Trust. The Transferor will,
however, be permitted to designate and require reassignment to it of the
Receivables from Removed Accounts only if: (i) the removal of any Receivables of
any Removed Accounts will not, in the reasonable belief of the Transferor, cause
a Pay Out Event to occur; (ii) the Transferor shall have delivered to the
related Trustee for execution a written assignment and a computer file or
microfiche list containing a true and complete list of all Removed Accounts
identified by account number and the aggregate amount of the Receivables in such
Removed Accounts; (iii) the Transferor represents and warrants that no selection
procedures believed by the Transferor to be materially adverse to the interests
of the holders of any Series of Certificates outstanding under such Trust were
used in selecting the Removed Accounts to be removed from such Trust; (iv) the
Transferor shall have received notice from each such Rating Agency that such
proposed removal will not result in a downgrade of its then-current rating for
any such Series; (v) the Principal Receivables of the Removed Accounts shall not
equal or exceed the percentage specified in the related Prospectus Supplement of
the aggregate amount of the Principal Receivables in such Trust at such time,
except that, if any Series has been paid in full, the Principal Receivables in
such Removed Accounts may
43
equal or approximately equal the initial Investor Interest or Full Investor
Interest, as applicable, of that Series; (vi) such other conditions as are
specified in the related Prospectus Supplement; and (vii) the Transferor shall
have delivered to the Trustee an officer's certificate confirming the items set
forth in clauses (i) through (vi) above. Notwithstanding the above, the
Transferor will be permitted to designate as a Removed Account without the
consent of the related Trustee, Certificateholders or Rating Agencies any
Account that has a zero balance and which the Transferor will remove from its
computer file.
COLLECTION AND OTHER SERVICING PROCEDURES
For each Series of Certificates, the Servicer will be responsible for
servicing and administering the Receivables in accordance with the Servicer's
policies and procedures for servicing credit card receivables comparable to the
Receivables. The Servicer will be required to maintain fidelity bond coverage
insuring against losses through wrongdoing of its officers and employees who are
involved in the servicing of credit card receivables covering such actions and
in such amounts as the Servicer believes to be reasonable from time to time.
DISCOUNT OPTION
The Transferor may at any time designate a specified fixed or variable
percentage as specified in the related Prospectus Supplement (the "Discount
Percentage") of the amount of Receivables arising in the Accounts with respect
to the related Trust on and after the date such option is exercised that
otherwise would have been treated as Principal Receivables to be treated as
Finance Charge Receivables. Such designation will become effective upon
satisfaction of the requirements set forth in the related Agreement, including
confirmation by each Rating Agency that such designation will not result in a
withdrawal or downgrade of its rating of any outstanding Series of the related
Trust. On the date of processing of any collections, the product of the Discount
Percentage and collections of Receivables that arise in the Accounts on such day
on or after the date such option is exercised that otherwise would be Principal
Receivables will be deemed collections of Finance Charge Receivables and will be
applied accordingly.
TRUST ACCOUNTS
With respect to each Trust, the related Trustee will establish and maintain
in the name of the Trust, a "Finance Charge Account" and an "Excess Funding
Account," as segregated trust accounts or with a Qualified Institution, for the
benefit of the Certificateholders of all related Series, including any Series
offered pursuant to this Prospectus. Each Agreement will also permit the Trustee
to establish accounts for particular Series, including an Interest Funding
Account, a Principal Funding Account, a Pre-Funding Account or any other account
specified in the related Series Supplement. Each series account will be held for
the benefit of the Certificateholders of the related Series and for the purposes
set forth in the related Prospectus Supplement. The Trustee will also establish
a segregated demand deposit account to serve as the "Distribution Account" for
the related Trust. The Servicer will establish and maintain, in the name of the
Trustee, on behalf of the Trust, for the benefit of Certificateholders of all
Series issued thereby, a non-interest bearing segregated account to serve as the
Collection Account for that Trust. The Distribution Account and Collection
Account will each be established as a segregated trust account or with a
"Qualified Institution," defined as a depository institution or trust company,
which may include the related Trustee, organized under the laws of the United
States or any one of the states thereof, which at all times has a certificate of
deposit, short-term deposit or commercial paper rating of P-1 by Moody's
Investors Service, Inc. ("Moody's") and of at least A-1 by Standard & Poor's
Ratings Services, a division of The McGraw Hill Companies, Inc. ("Standard &
Poor's") or long-term unsecured debt obligation (other than such obligation the
rating of which is based on collateral or on the credit of a person other than
such institution or trust company) rating of at least Aa3 by Moody's and AA- by
Standard & Poor's and deposit insurance provided by either the Bank Insurance
Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"), each
administered by the FDIC, or a depository institution, which may include the
Trustee, which is acceptable to each Rating Agency. Funds in the Excess Funding
Account, the Finance Charge Account, the Principal Funding Account, the
Distribution Account and any series account for each Trust will be invested, at
the direction of the Servicer, in (i) obligations fully guaranteed by the United
States of America, (ii) demand deposits, time deposits or certificates of
deposit of depository institutions or trust companies, the certificates of
deposit of which have the highest rating from Moody's and Standard & Poor's,
44
(iii) commercial paper having, at the time of the Trust's investment, a rating
in the highest rating category from Moody's and Standard & Poor's, (iv) bankers'
acceptances issued by any depository institution or trust company described in
clause (ii) above, (v) money market funds which have the highest rating from, or
have otherwise been approved in writing by, Moody's and Standard & Poor's (so
long as such investment will not require the Trust to register as an investment
company under the Investment Company Act of 1940, as amended), (vi) repurchase
obligations with respect to any security described in clause (i) above or with
respect to any other security issued or guaranteed by an agency or
instrumentality of the United States of America, in either case entered into
with a depository institution or trust company described in clause (ii) above
and (vii) any other investment if each Rating Agency confirms in writing that
such investment will not adversely affect its then current rating or ratings of
the Investor Certificates and making such investment will not require the
related Trust to register as an investment company under the Investment Company
Act of 1940, as amended (such investments, "Permitted Investments"). Any
earnings (net of losses and investment expenses) on funds in the Finance Charge
Account, the Excess Funding Account or the Distribution Account will be paid to
the Transferor. The Servicer will have the revocable power to withdraw funds
from the Collection Account and to instruct the Trustee to make withdrawals and
payments from the Finance Charge Account and the Excess Funding Account for the
purpose of carrying out the Servicer's duties under the Agreement. Each
Prospectus Supplement will identify a paying agent which will have the revocable
power to withdraw funds from the Distribution Account for the purpose of making
distributions to the Certificateholders (or, if no such entity is designated,
the related Trustee shall act as paying agent).
FUNDING PERIOD
For any Series of Certificates, the related Prospectus Supplement may
specify that during a Funding Period, all or a portion of the principal amount
of such Series (the "Pre-Funding Amount") will be held in a Pre-Funding Account
pending the transfer of additional Receivables to the Trust or pending the
reduction of the Investor Interests of other Series issued by the related Trust.
The related Prospectus Supplement will specify the initial Investor Interest
with respect to such Series, the Full Investor Interest and the date by which
the Investor Interest is expected to equal the Full Investor Interest. The
Investor Interest will increase as Receivables are added to the related Trust or
as the Investor Interests of other Series of the related Trust are reduced. See
"-- Addition of Trust Assets." This feature is intended to permit the Transferor
to issue a new Series of Certificates at an opportune time, if the Investor
Interest of existing Series are expected to be reduced or additional Receivables
are expected to be included in a Trust at a subsequent time. Certificateholders
will not incur any costs, direct or indirect, as a result of the exercise of
this feature. If the Investor Interest does not equal the Full Investor Interest
by the end of the Funding Period, Certificateholders of the affected Series will
receive principal repayments prior to the expected date of receipt. See "Risk
Factors -- Pre-Funding Account." Any designation of Additional Accounts (or
Participations) during the Funding Period will be subject to the same conditions
and protections applicable at any other time. It is not expected or required
that the Trustee or any other Person (except for the Transferor) will make any
initial examination of Receivables added to a Trust during a Funding Period for
the purpose of establishing the presence or absence of defects, compliance with
the Transferor's representations and warranties or for any other purpose.
During the Funding Period, funds on deposit in the Pre-Funding Account for a
Series of Certificates will be withdrawn and paid to the holder of the
Transferor Certificate to the extent of any increases in the Investor Interest.
In the event that the Investor Interest does not for any reason equal the Full
Investor Interest by the end of the Funding Period, any amount remaining in the
Pre-Funding Account will be payable to the Certificateholders of such Series in
the manner and at such time as set forth in the related Prospectus Supplement.
Such payment will reduce the aggregate principal amount of such Certificates. In
addition, if so specified in the related Prospectus Supplement, a prepayment
premium or penalty or similar amount may be payable to the Certificateholders of
such Series.
Monies in the Pre-Funding Account will be invested by the Trustee in
Permitted Investments and, if so specified in the related Prospectus Supplement,
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Pre-Funding Account during the
related Monthly Period will be
45
withdrawn from the Pre-Funding Account and deposited, together with any
applicable payment under a guaranteed rate or investment agreement or other
similar arrangement, into the Finance Charge Account for distribution in respect
of interest on the Certificates of the related Series in the manner specified in
the related Prospectus Supplement.
INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
For each Trust, the Servicer will allocate between the Investor Interest of
each Series issued by such Trust (and between each Class of each Series) and the
Transferor Interest, and, in certain circumstances, the interest of certain
Credit Enhancement Providers, all amounts collected on Finance Charge
Receivables, all amounts collected on Principal Receivables and all Receivables
in Defaulted Accounts. The Servicer will make each allocation by reference to
the applicable Investor Percentage of each Series and the Transferor Percentage,
and, in certain circumstances, the percentage interest of certain providers of
Enhancement (the "Credit Enhancement Percentage") with respect to such Series.
The Prospectus Supplement relating to a Series will specify the Investor
Percentage and, if applicable, the Credit Enhancement Percentage (or the method
of calculating such percentages) with respect to the allocations of collections
of Principal Receivables, Finance Charge Receivables and Receivables in
Defaulted Accounts during the Revolving Period, any Amortization Period and any
Accumulation Period, as applicable. In addition, for each Series of Certificates
having more than one Class, the related Prospectus Supplement will specify the
method of allocation between each Class.
The Transferor Percentage will, in all cases, be equal to 100% minus the
aggregate Investor Percentages and, if applicable, the Credit Enhancement
Percentages, for all Series then outstanding.
APPLICATION OF COLLECTIONS
Except as otherwise provided below, the Servicer will deposit into the
Collection Account for the related Trust, no later than the second business day
(or such other day specified in the related Prospectus Supplement) following the
date of processing, any payment collected by the Servicer on the Receivables. On
the same day as any such deposit is made, the Servicer will make the deposits
and payments to the accounts and parties as indicated below, except that, for as
long as the Bank remains the Servicer under the related Agreement and (a) the
Servicer has and maintains a certificate of deposit or unsecured short-term debt
rating of P-1 by Moody's and of A-1 by Standard & Poor's and deposit insurance
provided by either BIF or SAIF or (b) the Servicer provides to the Trustee a
letter of credit or other credit support acceptable to each Rating Agency, then
the Servicer may make such deposits and payments on a monthly or other periodic
basis on the Transfer Date in an amount equal to the net amount of such deposits
and payments which would have been made.
Whether the Servicer is required to make monthly or daily deposits to the
Collection Account with respect to any Monthly Period, (i) the Servicer will
only be required to deposit Collections from the Collection Account into the
Finance Charge Account, the Excess Funding Account or such related series
account up to the required amount to be deposited into any such account or,
without duplication, distributed on or prior to the related Distribution Date to
Certificateholders or to the provider of Enhancement and (ii) if at any time
prior to such Distribution Date the amount of Collections deposited in the
Collection Account exceeds the amount required to be deposited pursuant to
clause (i) above, the Servicer will be permitted to withdraw the excess from the
Collection Account.
The Servicer will withdraw the following amounts from the Collection Account
for application as indicated:
(a) an amount equal to the Transferor Percentage of the aggregate amount
of such deposits in respect of Principal Receivables and Finance Charge
Receivables, respectively, will be paid or held for payment to the holder of
the Transferor Certificate (or, in certain limited circumstances, deposited
in the Excess Funding Account);
(b) an amount equal to the applicable Investor Percentage of the
aggregate amount of such deposits in respect of Finance Charge Receivables
will be deposited into the Finance Charge Account for allocation and
distribution as described in the related Prospectus Supplement;
46
(c) during the Revolving Period, an amount equal to the applicable
Investor Percentage of the aggregate amount of such deposits in respect of
Principal Receivables will be paid or held for payment to the holder of the
Transferor Certificate, provided that if after giving effect to the
inclusion in the related Trust of all Receivables on or prior to such date
of processing and the application of payments referred to in paragraph (a)
above the Transferor Interest is reduced to less than the Minimum Transferor
Interest, the excess will be deposited in the Excess Funding Account or
other specified account and will be used as described in the related
Prospectus Supplement, including for payment to other Series of Certificates
issued by the related Trust;
(d) during the Controlled Amortization Period, Controlled Accumulation
Period or Rapid Accumulation Period, as applicable, an amount equal to the
applicable Investor Percentage of such deposits in respect of Principal
Receivables up to the amount, if any, specified in the related Prospectus
Supplement will be deposited in the Principal Funding Account or related
series account identified for such purpose, as applicable, for allocation
and distribution to Certificateholders as described in the related
Prospectus Supplement, except that, if collections of Principal Receivables
exceed the principal payments which may be allocated or distributed to
Certificateholders, then the amount of such excess will be paid to the
holder of the Transferor Certificate until the Transferor Interest is
reduced to the Minimum Transferor Interest, and thereafter will be deposited
in the Excess Funding Account or other specified account and will be used as
described in the related Prospectus Supplement, including for payment to
other Series of Certificates issued by the related Trust; and
(e) during the Principal Amortization Period, if applicable, and the
Rapid Amortization Period, an amount equal to the applicable Investor
Percentage of such deposits in respect of Principal Receivables will be
deposited into the related series account identified for such purpose for
application and distribution as provided in the related Prospectus
Supplement.
In the case of a Series of Certificates 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 related Prospectus Supplement.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Any Series offered hereby may be included in a Group. The Prospectus
Supplement relating to a Series will specify whether such Series will be
included in a Group and will identify any previously issued Series included in
such Group. If so specified in the related Prospectus Supplement, the
Certificateholders of a Series within a Group or any Class thereof may be
entitled to receive all or a portion of Excess Finance Charge Collections with
respect to other Series in that Group to cover any shortfalls with respect to
amounts payable from collections of Finance Charge Receivables allocable to such
Series or Class. See "-- Application of Collections" and "-- Defaulted
Receivables; Incentive Payments and Fraudulent Charges; Investor Charge-Offs."
EXCESS FUNDING ACCOUNT
If on any date the Transferor Interest is less than the Minimum Transferor
Interest (after giving effect to any addition of Principal Receivables to the
applicable Trust), the Servicer will not distribute to the holder of the
Transferor Certificate any collections of Principal Receivables that otherwise
would be distributed to the holder of the Transferor Certificate, but shall
instead deposit such funds in a segregated account established and maintained by
the Trustee, in the name of the Trust, for the benefit of Certificateholders of
all Series issued by such Trust, as a trust account or with the Servicer or with
a Qualified Institution (the "Excess Funding Account") until the Transferor
Interest equals the Minimum Transferor Interest. Funds on deposit in the Excess
Funding Account will be withdrawn and paid to the holder of the Transferor
Certificate on any date to the extent that the Transferor Interest is greater
than the Minimum Transferor Interest on such date. If a Controlled Accumulation
Period, Controlled Amortization Period, Principal Amortization Period, Rapid
Amortization Period or Rapid Accumulation Period commences with respect to any
Series in a Group entitled to the benefits of Shared Principal Collections, then
an amount of funds on deposit in the Excess Funding Account (after giving effect
to the release of funds to the holder of the Transferor Certificate as described
above) up to the amount, if any, by which the Transferor Interest would be less
than zero if there
47
were no funds on deposit in the Excess Funding Account on such date, will be
treated as Shared Principal Collections to the extent needed to cover principal
payments due to or for the benefit of such Series, if the Series Supplement with
respect to such Series so provides.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee, at the direction of the Servicer, in Permitted Investments. Any
earnings (net of losses and investment expenses) earned on amounts on deposit in
the Excess Funding Account during any Monthly Period will be withdrawn from the
Excess Funding Account and turned over to or at the direction of the Servicer.
SHARED PRINCIPAL COLLECTIONS
If so specified in the related Prospectus Supplement, to the extent that
collections of Principal Receivables and certain other amounts that are
allocated to the Investor Interest of any Series are not needed to make payments
or deposits with respect to such Series, such collections will constitute Shared
Principal Collections and will be applied to cover principal payments due to or
for the benefit of Certificateholders of other Series. If so specified in the
related Prospectus Supplement, the allocation of Shared Principal Collections
may be among Series within a Group. Any such reallocation will not result in a
reduction in the Investor Interest of the Series to which such collections were
initially allocated.
PAIRED SERIES
If specified in the Prospectus Supplement relating to a Series, such Series
may be paired with another Series (each, a "Paired Series"), such that a
reduction in the Investor Interest or Adjusted Investor Interest of one such
Series results in an increase in the Investor Interest of the other such Series.
A Paired Series would provide financing for a portion of the applicable Trust's
assets, from which the Collections of Principal Receivables are dedicated to a
pre-existing Series if that pre-existing Series has, in part, been paid or
effectively defeased with Collections that have been set aside for an eventual
payment. The effects of this feature will be discussed in the Prospectus
Supplement relating to a Paired Series. The "Adjusted Investor Interest" for any
Series means the Investor Interest of that Series, adjusted in any manner
described in the related Prospectus Supplement.
DEFAULTED RECEIVABLES; INCENTIVE PAYMENTS AND FRAUDULENT CHARGES; INVESTOR
CHARGE-OFFS
For each Series of Certificates, on the business day preceding each Transfer
Date (the "Determination Date"), the Servicer will calculate the aggregate
Investor Default Amount for the preceding Monthly Period, which will equal the
aggregate amount of the Investor Percentage of Principal Receivables in Accounts
that were written off as uncollectible in such Monthly Period (in accordance
with the Servicer's policies and procedures). In the case of a Series of
Certificates having more than one Class, the Investor Default Amount will be
allocated among the Classes in the manner described in the related Prospectus
Supplement. If so provided in the related Prospectus Supplement, an amount equal
to the Investor Default Amount for any Monthly Period may be paid from other
amounts, including collections in the Finance Charge Account or from Credit
Enhancement, and applied to pay principal to Certificateholders or the holder of
the Transferor Certificate, as appropriate. In the case of a Series of
Certificates having one or more Classes of Subordinated Certificates, the
related Prospectus Supplement may provide that all or a portion of amounts
otherwise allocable to such Subordinated Certificates may by paid to the Senior
Certificateholders to make up any Investor Default Amount allocable to such
Senior Certificateholders.
The Investor Interest of each Series will be reduced by the amount of
Investor Charge-Offs for that Series in any Monthly Period. Investor Charge-Offs
will be reimbursed on any Distribution Date to the extent amounts on deposit in
the Finance Charge Account and otherwise available therefor exceed interest,
fees and any aggregate Investor Default Amount payable on such date, resulting
in an increase in the Series' Investor Interest. In the case of a Series of
Certificates having more than one Class, the related Prospectus Supplement will
describe the manner and priority of allocating Investor Charge-Offs and
reimbursements thereof among the Investor Interests of the several Classes.
If the Servicer adjusts the amount of any Principal Receivable because of
transactions or set-offs occurring in respect of an incentive payment to or for
the benefit of a cardholder or because such Principal Receivable was created in
respect of merchandise which was refused or returned by a cardholder, then the
48
amount of the Transferor Interest in the related Trust will be reduced by the
aggregate amount of the adjustment. In addition, the Transferor Interest in such
Trust will be reduced, on a net basis, as a result of transactions in respect of
any Principal Receivable which was discovered to have been created through a
fraudulent or counterfeit charge. Furthermore, in the event that the exclusion
of such Receivables from the calculation of the Transferor Interest at such time
would cause the Transferor Interest to be less than the Minimum Transferor
Interest, the Transferor will be required to pay an amount equal to such
deficiency into the Excess Funding Account.
DEFEASANCE
If so specified in the Prospectus Supplement relating to a Series, the
Transferor may terminate its substantive obligations in respect of such Series
or the related Trust by depositing with the Trustee, from amounts representing,
or acquired with, collections of Receivables, money or Permitted Investments
sufficient to make all remaining scheduled interest and principal payments on
such Series or all outstanding Series of Certificates of such Trust, as the case
may be, on the dates scheduled for such payments and to pay all amounts owing to
any Credit Enhancement Provider with respect to such Series or all outstanding
Series, as the case may be, if such action would not result in a Pay Out Event
for any Series. Prior to its first exercise of its right to substitute money or
Permitted Investments for Receivables, the Transferor will deliver to the
Trustee (i) an opinion of counsel to the effect that such deposit and
termination of obligations will not result in the related Trust being required
to register as an "investment company" within the meaning of the Investment
Company Act of 1940, as amended and (ii) a Tax Opinion.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Certificates of each Series will be subject to optional repurchase by
the Transferor on any Distribution Date after that Series' Investor Interest and
any related Enhancement Invested Amount is reduced to an amount less than or
equal to 5% of the initial Investor Interest (or such other amount specified in
the related Prospectus Supplement), if certain conditions set forth in the
related Agreement are met. The repurchase price will be specified in the related
Prospectus Supplement, or, if not so specified, will equal the Series' Investor
Interest (less the amount, if any, on deposit in any Principal Funding Account
with respect to such Series), plus the Enhancement Invested Amount, if any, with
respect to such Series, plus accrued and unpaid interest on the Certificates and
interest or other amounts payable on the Enhancement Invested Amount or the
Collateral Interest, if any, through the day preceding the Distribution Date on
which the repurchase occurs.
The Certificates of each Series will be retired on the day following the
Distribution Date on which the final payment of principal is scheduled to be
made to the Certificateholders, whether as a result of optional reassignment to
the Transferor or otherwise. Each Prospectus Supplement will specify the final
date on which principal and interest with respect to the related Series of
Certificates will be scheduled to be distributed (the "Series Termination
Date"). Certificates may, however, be subject to prior termination as provided
above. If the Investor Interest is greater than zero on the Series Termination
Date, the Trustee or Servicer may be required to sell or cause to be sold
certain Receivables in the manner provided in the related Agreement and Series
Supplement and to pay the net proceeds of such sale and any collections on the
Receivables, in an amount at least equal to the sum of the Investor Interest and
the Enhancement Invested Amount, if any, with respect to such Series plus
accrued interest due thereon.
Unless the Servicer and the holder of the Transferor Certificate instruct
the Trustee otherwise, each Trust will terminate on the earlier of (a) the day
after the Distribution Date on which the aggregate Investor Interest and, if
specified in the Prospectus Supplement for any Series, the Enhancement Invested
Amount or Collateral Interest, if any, with respect to each Series issued by
such Trust is zero, (b) the Specified Trust Termination Date or (c) if the
Receivables are sold, disposed of or liquidated following the occurrence of an
Insolvency Event, immediately following such sale, disposition or liquidation
(such date, the "Trust Termination Date"). Upon the termination of each Trust
and the surrender of the Transferor Certificate, the Trustee shall convey to the
holder of the Transferor Certificate all right, title and interest of the Trust
in and to the Receivables and other funds of the Trust. For purposes hereof, the
"Specified Trust Termination Date" shall mean the day which is 21 years less one
day after the death of the officers and the last survivor of all the lineal
49
descendants of every officer of the Trustee of the related Trust who are living
on the date of the related Agreement, or such later date which would not render
the rights, privileges or options under such Trust invalid under applicable law.
PAY OUT EVENTS
The Revolving Period will terminate prior to the date specified in the
related Prospectus Supplement if a Pay Out Event occurs prior to such date. A
Pay Out Event occurs with respect to all Series issued by a Trust upon the
occurrence of any of the following events:
(a) certain events of insolvency or receivership relating to the
Transferor;
(b) the Transferor is unable for any reason to transfer Receivables to
such Trust in accordance with the provisions of the related Agreement; or
(c) such Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In addition, a Pay Out Event may occur with respect to any Series upon the
occurrence of any other event specified in the related Prospectus Supplement. On
the date on which a Pay Out Event is deemed to have occurred, the Rapid
Amortization Period or, if so specified in the related Prospectus Supplement,
the Rapid Accumulation Period will commence. If, because of the occurrence of a
Pay Out Event, the Rapid Amortization Period begins earlier than the scheduled
commencement of an Amortization Period or prior to a Scheduled Payment Date,
Certificateholders will begin receiving distributions of principal earlier than
they otherwise would have, which may shorten the average life of the
Certificates.
In addition to the consequences of a Pay Out Event discussed above, if
pursuant to certain provisions of Federal law, the Transferor voluntarily enters
liquidation or a receiver is appointed for the Transferor, on the day of such
event the Transferor will immediately cease to transfer Principal Receivables to
the Trust and promptly give notice to the Trustee of such event. Within 15 days,
the Trustee will publish a notice of the liquidation or the appointment stating
that the Trustee intends to sell, dispose of, or otherwise liquidate the
Receivables in a commercially reasonable manner. Unless otherwise instructed
within a specified period by Certificateholders representing undivided interests
aggregating more than 50% of the Investor Interest of each Series (or if any
Series has more than one Class, of each Class, and any other Person specified in
the related Agreement or a Series Supplement) issued and outstanding, the
Trustee will sell, dispose of, or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from the sale, disposition or liquidation of the Receivables will be
treated as collections of the Receivables and applied as specified above in "--
Application of Collections" and in the related Prospectus Supplement.
If the only Pay Out Event to occur is either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of a Rapid
Amortization Period or, if applicable with respect to a Series as specified in
the related Prospectus Supplement, a Rapid Accumulation Period. In addition, a
conservator or receiver may have the power to cause the early sale of the
Receivables and the early retirement of the Certificates. See "Risk Factors --
Certain Matters Relating to Receivership" and "Certain Legal Aspects of the
Receivables -- Certain Matters Relating to Receivership."
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For each Series of Certificates, the Servicer will be compensated for its
servicing activities and reimbursed for its expenses by payment to it of the
Servicing Fee at the times and in the amounts specified in the related
Prospectus Supplement. The Investor Servicing Fee will be funded from
collections of Finance Charge Receivables allocated to the Investor Interest and
will be paid each month (or on any other specified basis) from amounts so
allocated and on deposit in the Finance Charge Account (which, if so specified
in the related Prospectus Supplement, may include all or a portion of the
Interchange arising from the Accounts) or, in certain limited circumstances,
from amounts available from Enhancement and other sources, if any. The remainder
of the servicing fee for each Trust will be allocable to the Transferor
Interest, the Investor
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Interests of any other Series issued by such Trust and the interest represented
by the Collateral Interest or the Enhancement Invested Amount, if any, with
respect to such Series, as described in the related Prospectus Supplement.
Neither the Trust nor the Certificateholders will have any obligation to pay the
portion of the 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 payment of the
fees and disbursements of the Trustee and independent certified public
accountants and other fees that are not expressly stated in the Agreement to be
payable by the related Trust or the Certificateholders (but excluding Federal,
state and local income and franchise taxes, if any, of the Trust).
CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
With respect to each Series of Certificates, the Servicer may not resign
except upon determination that performance of its duties is no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or another successor to the Servicer has assumed the
Servicer's responsibilities and obligations under the related Agreement.
Each Agreement will provide that the Servicer will indemnify the related
Trust and Trustee from and against any reasonable loss, liability, expense,
damage or injury suffered or sustained by reason of any acts or omissions or
alleged acts or omissions of the Servicer with respect to the activities of the
Trust or the Trustee. The Servicer will not, however, indemnify (a) the Trustee
for liabilities imposed by reason of fraud, negligence or willful misconduct by
the Trustee in the performance of its duties under the Agreement, (b) the Trust,
the Certificateholders or the Certificate Owners for liability arising from
actions taken by the Trustee at the request of Certificateholders, (c) the
Trust, the Certificateholders or the Certificate Owners for any losses, claims,
damages or liabilities incurred by any of them in their capacities as investors,
including losses incurred as a result of defaulted Receivables or Receivables
which are written off as uncollectible, or (d) the Trust, the Certificateholders
or the Certificate Owners for any liabilities, costs or expenses of the Trust,
the Certificateholders or the Certificate Owners arising under any tax law,
including any Federal, state, local or foreign income or franchise tax or any
other tax imposed on or measured by income (or any interest or penalties with
respect thereto or arising from a failure to comply therewith) required to be
paid by the Trust, the Certificateholders or the Certificate Owners in
connection with the Agreement to any taxing authority.
In addition, each Agreement will provide that, subject to certain
exceptions, the Transferor will indemnify an injured party for any losses,
claims, damages or liabilities (other than those incurred by a Certificateholder
as an investor in the Certificates or those which arise from any action of a
Certificateholder) arising out of or based upon the arrangement created by the
Agreement as though the Agreement created a partnership under the Delaware
Uniform Partnership Law in which the Transferor is a general partner.
Each Agreement will provide that neither the Transferor nor the Servicer nor
any of their respective directors, officers, employees or agents will be under
any other liability to the related Trust, Trustee, Certificateholders or any
other person for any action taken, or for refraining from taking any action, in
good faith pursuant to the Agreement. Neither the Transferor, the Servicer, nor
any of their respective directors, officers, employees or agents will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence of the Transferor, the
Servicer or any such person in the performance of its duties or by reason of
reckless disregard of obligations and duties thereunder. In addition, each
Agreement will provide 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 Agreement and which in its opinion may
expose it to any expense or liability.
Each Agreement will provide that, in addition to Exchanges, if applicable,
the Transferor may transfer its interest in all or a portion of the Transferor
Certificate, provided that prior to any such transfer (a) the Trustee receives
written notification from each Rating Agency that such transfer will not result
in a lowering of its then-existing rating of the Certificates of each
outstanding Series rated by it and (b) the Trustee receives a Tax Opinion.
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Any person into which, in accordance with each Agreement, the Transferor or
the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Transferor or the Servicer is a party, or
any person succeeding to the business of the Transferor or the Servicer, upon
execution of a supplement to the Agreement and delivery of an opinion of counsel
with respect to the compliance of the transaction with the applicable provisions
of the Agreement, will be the successor to the Transferor or the Servicer, as
the case may be, under the Agreement.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the Trustee
or Certificateholders representing undivided interests aggregating more than 50%
of the Investor Interests for all Series of Certificates of the related Trust,
by written notice to the Servicer (and to the Trustee if given by the
Certificateholders), may terminate all of the rights and obligations of the
Servicer as servicer under the Agreement and in and to the Receivables and the
proceeds thereof and the Trustee may appoint a new Servicer (a "Service
Transfer"). The rights and interest of the Transferor under the related
Agreement and in the Transferor Interest will not be affected by such
termination. The related Trustee will as promptly as possible appoint a
successor Servicer. If no such Servicer has been appointed and has accepted such
appointment by the time the Servicer ceases to act as Servicer, all authority,
power and obligations of the Servicer under the Agreement will pass to and be
vested in the Trustee. If the Trustee is unable to legally act as Servicer, the
Trustee shall petition a court to appoint a financial institution with
risk-based capital or a net worth of at least $50,000,000 whose regular business
includes servicing VISA or MasterCard credit card receivables to act as
successor Servicer.
"Servicer Default" under any Agreement refers to any of the following
events:
(a) failure by the Servicer to make any payment, transfer or deposit, or
to give instructions to the Trustee to make certain payments, transfers or
deposits, on the date the Servicer is required to do so under the related
Agreement or any Series Supplement (or within the applicable grace period,
which shall not exceed 10 business days);
(b) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer which has a
material adverse effect on the Certificateholders of any Series issued and
outstanding under such Trust and which continues unremedied for a period of
60 days after written notice and continues to have a material adverse effect
on such Certificateholders; or the delegation by the Servicer of its duties
under the Agreement, except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the Servicer
in the Agreement, or in any certificate delivered pursuant to the Agreement,
proves to have been incorrect when made which has a material adverse effect
on the Certificateholders of any Series issued and outstanding under such
Trust, and which continues to be incorrect in any material respect for a
period of 60 days after written notice and continues to have a material
adverse effect on such Certificateholders; or
(d) the occurrence of certain insolvency events with respect to the
Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred
to in clause (a) above for a period of 30 business days (or, in either case,
such longer or shorter period as may be specified in the related Prospectus
Supplement), or referred to under clause (b) or (c) for a period of 60 business
days, will not constitute a Servicer Default if such delay or failure could not
be prevented by the exercise of reasonable diligence by the Servicer and such
delay or failure was caused by an act of God or other similar occurrence. Upon
the occurrence of any such event, the Servicer will not be relieved from using
its best efforts to perform its obligations in a timely manner in accordance
with the terms of the Agreement, and the Servicer will
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provide the Trustee, any provider of Enhancement, the Transferor and the holders
of Certificates of each Series issued and outstanding under the related Trust
prompt notice of such failure or delay by it, together with a description of the
cause of such failure or delay and its efforts to perform its obligations.
If a conservator or receiver is appointed for the Servicer, and no Servicer
Default other than such conservatorship or receivership or the insolvency of the
Servicer exists, the conservator or receiver may have the power to prevent
either the Trustee or the majority of the certificateholders from effecting a
Service Transfer.
REPORTS TO CERTIFICATEHOLDERS
For each Series of Certificates, on each Distribution Date, or as soon
thereafter as is practicable, as specified in the related Prospectus Supplement,
the Trustee will forward to each Certificateholder of record a statement
prepared by the Servicer setting forth, among other things: (a) the total amount
distributed, (b) the amount of the distribution on such Distribution Date
allocable to principal on the Certificates, (c) the amount of such distribution
allocable to interest on the Certificates, (d) the amount of collections of
Principal Receivables processed during the preceding month or months since the
last Distribution Date and allocated in respect of the Certificates, (e) the
aggregate amount of Principal Receivables, the Investor Interest and the
Investor Interest as a percentage of the aggregate amount of the Principal
Receivables in the Trust as of the end of the last day of the preceding Monthly
Period or Periods since the last Distribution Date, (f) the aggregate
outstanding balance of Accounts which are 30-59, 60-89 and 90 or more days
delinquent (or a similar classification of delinquency) as of the end of the
last day of the preceding Monthly Period or Periods since the last Distribution
Date, (g) the aggregate Investor Default Amount for the preceding Monthly Period
or Periods since the last Distribution Date, (h) the amount of Investor Charge-
Offs for the preceding Monthly Period or Periods since the last Distribution
Date and the amount of reimbursements of previous Investor Charge-Offs for the
preceding Monthly Period or Periods since the last Distribution Date, (i) the
amount of the Investor Servicing Fee for the preceding Monthly Period or Periods
since the last Distribution Date, (j) the amount available under any Enhancement
and Credit Enhancement, if any, as of the close of business on such Distribution
Date, (k) the aggregate amount of collections on Finance Charge Receivables
processed during the preceding Monthly Period or Periods since the last
Distribution Date, (l) the Portfolio Yield for the preceding Monthly Period or
Periods since the last Distribution Date and (m) certain information relating to
the floating or variable Certificate Rates, if applicable, for the Monthly
Period or Periods ending on such Distribution Date. If a Series of Certificates
has more than one Class, the statements forwarded to Certificateholders will
provide information as to each Class of Certificates.
On or before January 31 of each calendar year or such other date as
specified in the related Prospectus Supplement, the Trustee will furnish to each
person who at any time during the preceding calendar year was a
Certificateholder of record, a statement prepared by the Servicer containing the
information required to be contained in the regular monthly report to
Certificateholders, as set forth in clauses (a), (b) and (c) above aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder, together with such other customary information
(consistent with the treatment of the Certificates as debt) as the Trustee or
the Servicer deems necessary or desirable to enable the Certificateholders to
prepare their United States tax returns.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before March 31 of each calendar year
commencing after the calendar year during which such Agreement becomes effective
(or another date specified in the related Prospectus Supplement) the Servicer
will cause a firm of independent certified public accountants to furnish a
report to the effect that such accounting firm has made a study and evaluation
of the Servicer's internal accounting controls relative to the servicing of the
Accounts and that, on the basis of such examination, such firm is of the opinion
that, assuming the accuracy of reports by the Servicer's third party agents,
such servicing was conducted in compliance with the sections of the related
Agreement during the period covered by such report (which shall be the prior
calendar year), except for such exceptions or errors as such firm shall believe
to be immaterial and such other exceptions as shall be set forth in such
statement.
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Each Agreement will provide for delivery to the Trustee on or before March
31 of each calendar year commencing after the calendar year during which such
Agreement becomes effective, or such other date as is specified in the related
Prospectus Supplement, of an annual statement signed by an officer of the
Servicer to the effect that the Servicer has fully performed its obligations
under the Agreement throughout the preceding year, or, if there has been a
default in the performance of any such obligation, specifying the nature and
status of the default.
AMENDMENTS
Each Agreement and any Series Supplement may be amended by the Transferor,
the Servicer and the related Trustee, without the consent of Certificateholders
of any Series then outstanding, (i) in order to add covenants, restrictions or
conditions on the Transferor which the Transferor's board of directors and the
Trustee consider to be for the benefit or protection of the Certificateholders,
which may include Payout Events relating to default of such covenants,
restrictions or conditions (with or without applicable grace periods), (ii) in
order to cure any ambiguity or correct or supplement any provision which may be
defective or inconsistent with any other provision or to surrender any right or
power conferred upon the Transferor, or (iii) for any purpose, so long as for
any amendment described in this clause (iii), (x) the Transferor delivers to the
Trustee an opinion of counsel to the effect that such amendment will not
adversely affect in any material respect the interest of such Certificateholders
and (y) such amendment will not result in a withdrawal or reduction of the
rating of any outstanding Series under the related Trust by any Rating Agency;
provided that if such amendment provides for additional or substitute Credit
Enhancement for a Series, changes the definition of Eligible Account or provides
for the addition of a Participation to the Trust, the matters to be covered by
the opinion of counsel described in clause (i) may instead be covered by a
certificate of an authorized officer of the Transferor. Such an amendment may be
entered into in order to comply with or obtain the benefits of certain future
tax legislation (such as legislation creating FASIT, as described below under
"U.S. Federal Income Tax Consequences -- Future Legislation").
Each Agreement and the related Series Supplement may also be amended by the
Transferor, the Servicer and the related Trustee with the consent of the holders
of Certificates evidencing undivided interests aggregating not less than 66 2/3%
(or such other percentage specified in the related Prospectus Supplement) of the
Investor Interests for all Series of the related Trust, for the purpose of
adding any provisions to, changing in any manner or eliminating any of the
provisions of, the Agreement or the related Series Supplement or of modifying in
any manner the rights of Certificateholders of any outstanding Series of the
Trust. No such amendment, however, may (a) reduce in any manner the amount of,
or delay the timing of, distributions required to be made on any Series, (b)
change the definition of or the manner of calculating the interest of any
Certificateholder of any Series issued by the Trust or (c) reduce the aforesaid
percentage of undivided interests the holders of which are required to consent
to any such amendment, in each case without the consent of all
Certificateholders of the related Series and of all Series adversely affected.
Promptly following the execution of any amendment to the Agreement, the Trustee
will furnish written notice of the substance of such amendment to each
Certificateholder. Any Series Supplement and any amendments regarding the
addition or removal of Receivables or Participations from the Trust will not be
considered an amendment requiring Certificateholder consent under the provisions
of the related Agreement and any Series Supplement.
LIST OF CERTIFICATEHOLDERS
Upon written request of Certificateholders of record representing undivided
interests in the Trust aggregating not less than 10% (or such other percentage
specified in the related Prospectus Supplement) of a Series' Investor Interest,
the Trustee will afford such Certificateholders access during business hours to
the current list of Certificateholders of the Trust for purposes of
communicating with other Certificateholders with respect to their rights under
the Agreement. The Trustee may, however, refuse to supply such list until it has
been adequately indemnified by such Certificateholders for its costs and
expenses, and will give the Servicer notice that such request has been made. See
"-- Book-Entry Registration" and "-- Definitive Certificates" above.
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THE TRUSTEE
The Prospectus Supplement for each Series will specify the Trustee under the
related Agreement. The Transferor, the Servicer and their respective affiliates
may from time to time enter into normal banking and trustee relationships with
the Trustee and its affiliates. The Trustee, the Transferor, the Servicer and
any of their respective affiliates may hold Certificates in their own names
(except that the Trustee may not hold a Certificate issued by the related Trust
for its own account). In addition, for purposes of meeting the legal
requirements of certain local jurisdictions, the Trustee shall have the power to
appoint a co-trustee or separate trustees of all or any part of the Trust. In
the event of such appointment, all rights, powers, duties and obligations
conferred or imposed upon the Trustee by the Agreement shall be conferred or
imposed upon the Trustee and such separate trustee or co-trustee jointly, or, in
any jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
The Trustee may resign at any time, in which event the Transferor will be
obligated to appoint a successor Trustee. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Transferor will be obligated to appoint a successor Trustee. Any resignation or
removal of the Trustee and appointment of a successor Trustee does not become
effective until acceptance of the appointment by the successor Trustee.
CREDIT ENHANCEMENT
GENERAL
Credit Enhancement may be provided with respect to one or more Classes or
any Series. Credit Enhancement may be in the form of the subordination of one or
more Classes of the Certificates of such Series, the establishment of a cash
collateral guaranty or account, a collateral interest, a letter of credit, a
surety bond, an insurance policy, a spread account, a reserve account, the use
of cross-support features, another method of Credit Enhancement described in the
related Prospectus Supplement or any combination of the foregoing. To the extent
specified in the related Prospectus Supplement, any form of Credit Enhancement
may be drawn upon by more than one Class.
Credit Enhancement generally will not provide protection against all risks
of loss and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon, although Credit Enhancement for a particular
Class or Series may provide such protection and guarantee if so specified in the
related Prospectus Supplement. If losses occur which exceed the amount covered
by the Credit Enhancement or which are not covered by the Credit Enhancement,
Certificateholders will bear their allocable share of deficiencies.
If Credit Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable under
such Credit Enhancement, (b) any conditions to payment thereunder not otherwise
described herein, (c) the conditions (if any) under which the amount payable
under such Credit Enhancement may be reduced and under which such Credit
Enhancement may be terminated or replaced and (d) any material provision of any
agreement relating to such Credit Enhancement. Additionally, the related
Prospectus Supplement may set forth certain information with respect to any
Credit Enhancement Provider, including (i) a brief description of its principal
business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to do
business, (iii) if applicable, the identity of regulatory agencies which
exercise primary jurisdiction over the conduct of its business and (iv) its
total assets, and its stockholders' or policy holders' surplus, if applicable,
and other appropriate financial information as of the date specified in the
Prospectus Supplement. If so specified in the related Prospectus Supplement,
Credit Enhancement with respect to a Series may be available to pay principal of
the Certificates of such Series following the occurrence of certain Pay Out
Events with respect to such Series, and the Credit Enhancement Provider may have
an interest in certain cash flows in respect of the Receivables to the extent
described in such Prospectus Supplement (the "Enhancement Invested Amount").
55
SUBORDINATION
If specified in the related Prospectus Supplement, one or more Classes of
any Series will be subordinated as described in the related Prospectus
Supplement to the extent necessary to fund payments with respect to the related
Senior Certificates. The rights of the holders of any such Subordinated
Certificates to receive distributions of principal and/or interest on any
Distribution Date will be subordinate in right and priority to the rights of the
holders of Senior Certificates to the extent set forth in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, subordination may
apply only in the event of certain types of losses not covered by another Credit
Enhancement. The related Prospectus Supplement will also set forth information
concerning the amount of subordination of a Class or Classes of Subordinated
Certificates in a Series, the circumstances in which such subordination will be
applicable, the manner, if any,
in which the amount of subordination will decrease over time and the conditions
under which amounts available from payments that would otherwise be made to
holders of such Subordinated Certificates will be distributed to holders of
Senior Certificates. If collections of Receivables otherwise distributable to
holders of a Subordinated Class of a Series will be used as support for a Class
of another Series, the related Prospectus Supplement will specify the manner and
conditions for applying such a cross-support feature.
CASH COLLATERAL GUARANTY OR ACCOUNT
If specified in the related Prospectus Supplement, support for a Series or
one or more Classes thereof will be provided by a guaranty (the "Cash Collateral
Guaranty") secured by the deposit of cash or certain permitted investments in an
account (the "Cash Collateral Account") reserved for the beneficiaries of the
Cash Collateral Guaranty or by a Cash Collateral Account alone. The amount
available pursuant to 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 related Prospectus Supplement. The related
Prospectus Supplement will set forth the circumstances under which payments are
made to beneficiaries of the Cash Collateral Guaranty from the Cash Collateral
Account or from the Cash Collateral Account directly.
COLLATERAL INTEREST
If specified in the related Prospectus Supplement, support for a Series or
one or more of its Classes will be provided initially by an undivided interest
in the Trust (the "Collateral Interest") in an amount initially equal to a
percentage of the Certificates of such Series as specified in the Prospectus
Supplement. Such Series may also have the benefit of a Cash Collateral Guaranty
or Cash Collateral Account with an initial amount on deposit therein, if any, as
specified in the Prospectus Supplement which will be increased (i) to the extent
the Transferor elects, subject to certain conditions specified in the related
Prospectus Supplement, to apply collections of Principal Receivables allocable
to the Collateral Interest to decrease the Collateral Interest, (ii) to the
extent collections of Principal Receivables allocable to the Collateral Interest
are required to be deposited into the Cash Collateral Account as specified in
the related Prospectus Supplement and (iii) to the extent excess collections of
Finance Charge Receivables are required to be deposited into the Cash Collateral
Account as specified in the related Prospectus Supplement. The total amount of
the Credit Enhancement available pursuant to the Collateral Interest and, if
applicable, the Cash Collateral Guaranty or Cash Collateral Account will be the
lesser of the sum of the Collateral Interest and the amount on deposit in the
Cash Collateral Account and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments which otherwise would be made to holders of the Collateral
Interest will be distributed to holders of Certificates and, if applicable, the
circumstances under which payment will be made under the Cash Collateral
Guaranty or under the Cash Collateral Account.
LETTER OF CREDIT
If specified in the related Prospectus Supplement, support for a Series or
one or more of its Classes 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 Credit Enhancement. The issuer of the letter of
credit will be obligated to honor demands with respect to such letter of credit,
to the extent of the amount available thereunder, to provide funds under the
circumstances and subject to such conditions as are specified in the related
Prospectus Supplement.
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The maximum liability of the issuer of the letter of credit under a letter
of credit will generally be an amount equal to a percentage specified in the
related Prospectus Supplement of the Initial Investor Interest of a Series or a
Class of such Series. The maximum amount available at any time to be paid under
a letter of credit will be determined in the manner specified therein and in the
related Prospectus Supplement.
SURETY BOND OR INSURANCE POLICY
If specified in the related Prospectus Supplement, insurance with respect to
a Series or one or more of its Classes will be provided by one or more insurance
companies. Such insurance will guarantee, with respect to one or more Classes of
the related Series, distributions of interest or principal in the manner and
amount specified in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, a surety bond will be
purchased for the benefit of the holders of any Series or Class or such Series
to assure distributions of interest or principal with respect to such Series or
Class of Certificates in the manner and amount specified in the related
Prospectus Supplement.
SPREAD ACCOUNT
If specified in the related Prospectus Supplement, support for a Series or
one or more of its Classes will be provided by the periodic deposit of certain
available excess cash flow from the Trust assets into an account (the "Spread
Account") intended to assist with subsequent distribution of interest and
principal on the Certificates of such Class or Series in the manner specified in
the related Prospectus Supplement.
RESERVE ACCOUNT
If specified in the related Prospectus Supplement, support for a Series or
one or more of its Classes or any related Enhancement will be provided by a
reserve account (the "Reserve Account"). The Reserve Account may be funded, to
the extent provided in the related Prospectus Supplement, by an initial cash
deposit, the retention of certain periodic distributions of principal, interest
or both otherwise payable to one or more Classes of Certificates, including the
Subordinated Certificates, or the provision of a letter of credit, guarantee,
insurance policy or other form of credit or any combination thereof. The Reserve
Account will be established to assist with the subsequent distribution of
principal or interest on the Certificates of such Series or Class or amounts
owing on any related Enhancement as provided in the related Prospectus
Supplement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor will represent and warrant in each Agreement that the
transfer of Receivables by it to the related Trust is either a valid transfer
and assignment to such Trust of all right, title and interest of the Transferor
in and to the related Receivables, except for the interest of the Transferor as
holder of the Transferor Certificate, or the grant to the Trustee of a security
interest in such Receivables. The Transferor also will represent and warrant in
each Agreement that, if the transfer of Receivables by the Transferor to the
related Trust is deemed to create a security interest under the Uniform
Commercial Code, as in effect in the State of Delaware (the "UCC"), there will
exist a valid, subsisting and enforceable first priority perfected security
interest in such Receivables created thereafter in favor of the Trustee on and
after their creation, except for certain tax and other governmental liens. For a
discussion of the Trust's rights arising from a breach of these warranties, see
"Description of the Certificates -- Representations and Warranties."
The Transferor will represent as to Receivables to be conveyed that the
Receivables are "accounts" or "general intangibles" for purposes of the UCC.
Both the absolute transfer and assignment of accounts and the transfer of
accounts as security for an obligation are treated for certain purposes under
Article 9 of the UCC as creating a security interest therein and are subject to
its provisions, and the filing of an appropriate financing statement is required
to perfect the security interest of the related Trust. Financing statements
covering the Receivables have been and will be filed with the appropriate
governmental authority to protect the interests of the related Trust in the
Receivables.
57
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after a Closing Date
could have an interest in such Receivables with priority over such Trust's
interest. Under the Agreement and each New Agreement, however, the Transferor
will represent and warrant that it transferred the Receivables to the Trust free
and clear of the lien of any third party. In addition, the Transferor will
covenant that it will not sell, pledge, assign, transfer or grant any lien on
any Receivable (or any interest therein) other than to the Trust. A tax or
government lien or other nonconsensual lien on property of the Transferor
arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable. In addition, if the
FDIC were appointed as receiver of the Transferor, certain administrative
expenses of the receiver may also have priority over the interest of the Trust
in such Receivable.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Transferor is chartered as a national banking association and is subject
to regulation and supervision by the Office of the Comptroller of the Currency,
which is authorized to appoint the FDIC as conservator or receiver of the
Transferor upon the occurrence of certain events relating to the Transferor's
financial condition.
The FDIA, as amended by FIRREA, sets forth certain powers that the FDIC in
its capacity as conservator or receiver for the Transferor could exercise.
Positions taken by the FDIC prior to the passage of FIRREA suggest that the
FDIC, if appointed as conservator or receiver for the Transferor, would not
interfere with the timely transfer to a Trust of payments collected on the
Receivables or interfere with the timely liquidation of related Receivables, as
described below. To the extent that the Transferor has granted a security
interest in related Receivables to a Trust, and that interest was validly
perfected before the Transferor's insolvency and was not taken in contemplation
of the insolvency of the Transferor, or with the intent to hinder, delay or
defraud the Transferor or the creditors of the Transferor, the FDIA provides
that such security interest should not be subject to avoidance. As a result,
payments to such Trust with respect to the Receivables should not be subject to
recovery by the FDIC as conservator or receiver of the Transferor. If, however,
the FDIC, as conservator or receiver for the Transferor, were to assert a
contrary position, or were to require the Trustee to establish its right to
those payments by submitting to and completing the administrative claims
procedure established under the FDIA, or the conservator or receiver were to
request a stay of proceedings with respect to the Transferor as provided under
the FDIA, delays in payments on the related Series of Certificates and possible
reductions in the amount of those payments could occur.
Upon the appointment of a conservator or receiver or upon a voluntary
liquidation with respect to the Transferor, the Transferor will promptly give
notice thereof to each Trustee and a Pay Out Event will occur with respect to
all Series then outstanding under the related Trust. Pursuant to each Agreement,
newly created Principal Receivables will not be transferred to the related Trust
on and after any such appointment or voluntary liquidation, and the Trustee will
proceed to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms, unless
otherwise instructed within a specified period by holders of Certificates
representing undivided interests aggregating more than 50% of the Investor
Interest of each Series (or if any Series has more than one Class, of each
Class, and any other Person specified in the related Agreement or a Series
Supplement), or unless otherwise required by the FDIC as receiver or conservator
of the Transferor. Under the Agreement, the proceeds from the sale of the
Receivables would be treated as collections of the Receivables and the Investor
Percentage of such proceeds would be distributed to the Certificateholders or,
if so specified in the related Prospectus Supplement, collected and held for the
benefit of Certificateholders. This procedure could be delayed, as described
above. If the only Pay Out Event to occur is either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of a Rapid
Amortization Period or, if applicable with respect to a Series as specified in
the related Prospectus Supplement, a Rapid Accumulation Period. In addition, a
conservator or receiver may have the power to cause the early sale of the
Receivables and the early retirement of the Certificates or to prohibit the
continued transfer of Principal Receivables to the Trust. See "Description of
the Certificates -- Pay Out Events."
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CONSUMER PROTECTION LAWS
The relationships of cardholders, credit card issuers and lenders are
extensively regulated by Federal and state consumer protection laws. With
respect to credit cards issued by the Transferor, the most significant laws
include the Federal Truth-in-Lending, Equal Credit Opportunity, Fair Credit
Reporting, Fair Debt Collection Practice and Electronic Funds Transfer Acts.
These statutes impose disclosure requirements when a credit card account is
advertised, when it is opened, at the end of monthly billing cycles and at year
end. In addition, these statutes limit customer liability for unauthorized use,
prohibit certain discriminatory practices in extending credit, and impose
certain limitations on the type of account-related charges that may be assessed.
Cardholders are entitled under these laws to have payments and credits applied
to the credit card accounts promptly, to receive prescribed notices and to
require billing errors to be resolved promptly. A Trust may be liable for
certain violations of consumer protection laws that apply to the related
Receivables, either as assignee from the Transferor with respect to obligations
arising before transfer of the Receivables to such Trust or as a party directly
responsible for obligations arising after the transfer. In addition, a
cardholder may be entitled to assert such violations by way of set-off against
his obligation to pay the amount of Receivables owing. The Transferor will
warrant in each Agreement that all related Receivables have been and will be
created in compliance with the requirements of such laws. The Servicer will also
agree in each Agreement to indemnify the Trust, among other things, for any
liability arising from such violations caused by the Servicer. For a discussion
of the Trust's rights arising from the breach of these warranties, see
"Description of the Certificates -- Representations and Warranties."
Certain jurisdictions may attempt to require out-of-state credit card
issuers to comply with such jurisdiction's consumer protection laws (including
laws limiting the charges imposed by such credit card issuers) in connection
with their operations in such jurisdictions. A successful challenge by such a
jurisdiction could have an adverse impact on the Transferor's credit card
operations or the yield on the Receivables in a Trust.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders if such laws result in any
related Receivables being written off as uncollectible when the amount available
under any Credit Enhancement is equal to zero. See "Description of the
Certificates -- Defaulted Receivables; Rebates and Fraudulent Charges; Investor
Charge-Offs."
In October 1991, the United States District Court for the State of
Massachusetts held that Greenwood Trust Company (a Federally-insured,
Delaware-chartered bank that issues the Discover credit card) was prohibited by
Massachusetts law from assessing late charges on credit card accounts of
Massachusetts residents. Following the District Court's decision, a number of
class action lawsuits or administrative actions were filed in several states
against out-of-state banks (both Federally-insured, state-chartered banks and
Federally-insured, national banks) which issue credit cards. These actions
challenge a portion or all of the various fees and charges (such as late fees,
overlimit fees, returned check fees, and annual account fees) assessed against
residents of states in which such suits were filed, based on restrictions or
prohibitions under such states' laws alleged to be applicable to the
out-of-state credit card issuers. The Transferor has been named a defendant in
two such lawsuits filed in Pennsylvania.
On August 6, 1992, the decision of the District Court regarding the
Greenwood Trust Company matter was reversed by the United States Court of
Appeals for the First Circuit, which held that the Massachusetts law was
preempted by Federal law permitting the charges in question. In January 1993,
the United States Supreme Court denied a petition from the Commonwealth of
Massachusetts to accept the case. Since the First Circuit's ruling in the
Greenwood Trust matter, several federal and state courts (including the United
States Court of Appeals for the Third Circuit, the Supreme Court of California
and the Supreme Court of Colorado) have issued rulings which find, variously,
that late fees, overlimit fees, returned check charges or annual account fees
fall within the definition of the term "interest", as such term is defined in
the National Bank Act, and that the permissibility of a national bank charging
such fees and charges consequently is governed by federal law. However, at least
two decisions (including a decision by the Supreme Court of New Jersey) have
found, variously, that late fees, overlimit fees, returned check charges and
annual account fees are not interest and therefore may not be charged by a
national bank unless permitted by the law of the state
59
in which the customer resides. A petition for a WRIT OF CERTIORARI has been
filed with the United States Supreme Court in connection with the ruling by the
California Supreme court based on this conflict. Such actions and similar
actions which may be brought in other states as a result of such actions, if
resolved adversely to bank credit card issuers, could have the effect of
limiting certain charges, other than periodic finance charges, that could be
assessed on credit card accounts of residents of such states and could require
credit card issuers to pay refunds and civil penalties with respect to charges
previously imposed on cardholders in such states.
U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing the material anticipated Federal
income tax consequences of the purchase, ownership and disposition of the
Certificates of a Series, is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), proposed, temporary and final Treasury
regulations thereunder, and published rulings and court decisions in effect as
of the date hereof, all of which are subject to change, possibly retroactively.
To the extent that the following summary relates to matters of law or legal
conclusions with respect thereto, such summary represents the opinion of Mayer,
Brown & Platt, special federal tax counsel for Bank subject to the
qualifications set forth herein. Mayer, Brown & Platt have prepared or reviewed
the statements in this Prospectus under the heading "U.S. Federal Income Tax
Consequences," and are of the opinion that such statements are correct in all
material respects. This discussion does not address every aspect of the Federal
income tax laws that may be relevant to Certificate Owners of a Series in light
of their personal investment circumstances or to certain types of Certificate
Owners of a Series subject to special treatment under the Federal income tax
laws (for example, banks and life insurance companies). Accordingly, investors
should consult their own tax advisors regarding Federal, state, local, foreign
and any other tax consequences to them of any investment in the Certificates of
a Series. PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
WITH REGARD TO THE FEDERAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, OR
DISPOSITION OF INTERESTS IN CERTIFICATES, AS WELL AS THE TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, FOREIGN COUNTRY, OR OTHER TAXING
JURISDICTION.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Mayer, Brown & Platt, or such other counsel specified in the related
Prospectus Supplement, will act as special tax counsel to the Bank ("Special Tax
Counsel") and will, upon issuance of a Series of Certificates, render an opinion
to the Bank based on the assumptions and qualifications set forth therein that
the Certificates of such Series that are offered pursuant to a Prospectus
Supplement (the "Offered Certificates", and for purposes of this section "U.S.
Federal Income Tax Consequences" the term "Certificate Owner" refers to a holder
of a beneficial interest in an Offered Certificate) will be treated as
indebtedness for Federal income tax purposes. A copy of such opinion will be
filed with the Commission with a Report on Form 8-K following the issuance of a
Series of Certificates. However, opinions of counsel are not binding on the
Internal Revenue Service (the "IRS"), and there can be no assurance that the IRS
could not successfully challenge this conclusion.
The Transferor expresses in the Agreement its intent that for Federal,
state, local and foreign income or franchise tax purposes, the Offered
Certificates of each Series will be indebtedness secured by the Receivables. The
Transferor agrees and each Certificateholder and Certificate Owner, by acquiring
an interest in an Offered Certificate, agrees or will be deemed to agree to
treat the Offered Certificates of such Series as indebtedness for Federal, state
and local income or franchise tax purposes. However, because different criteria
are used to determine the non-tax accounting characterization of the
transactions contemplated by the Agreement, the Transferor expects to treat such
transaction, for regulatory and financial accounting purposes, as a sale of an
ownership interest in the Receivables and not as a debt obligation.
In general, whether for Federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled.
60
While the IRS and the courts have set forth several factors to be taken into
account in determining whether the substance of a transaction is a sale of
property or a secured indebtedness for Federal income tax purposes, the primary
factor in making this determination is whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the benefits of ownership thereof. Special Tax Counsel may analyze and rely on
several factors in reaching its opinion that the weight of the benefits and
burdens of ownership of the Receivables has not been transferred to the
Certificate Owners.
In some instances, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. It is expected that Special Tax Counsel may
advise that the rationale of those cases will not apply to the transaction
evidenced by a Series of Certificates because the form of the transaction, as
reflected in the operative provisions of the documents, either is not
inconsistent with the characterization of the Offered Certificates of such
Series as debt for Federal income tax purposes or otherwise makes the rationale
of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
As set forth above, Special Tax Counsel will render an opinion to the Bank
that the Offered Certificates will constitute indebtedness for Federal income
tax purposes, and accordingly, interest thereon generally will be includible in
income by Certificate Owners as ordinary income when received (in the case of a
cash basis taxpayer) or accrued (in the case of an accrual basis taxpayer) in
accordance with their respective methods of tax accounting. Interest received on
the Offered Certificates may also constitute "investment income" for purposes of
certain limitations of the Code concerning the deductibility of investment
interest expense.
While it is not anticipated that the Offered Certificates will be issued at
a greater than DE MINIMIS discount, under Treasury regulations (the
"Regulations") the Offered Certificates may nevertheless be deemed to have been
issued with original issue discount ("OID"). This could be the case, for
example, if interest payments for a Series are not deemed to be payments of
"qualified stated interest" because (i) Certificate Owners of a Series do not
have default remedies ordinarily available to holders of debt instruments and
(ii) no penalties are imposed on the Bank or the applicable Trust as a result of
any failure to make interest payments. As a result, if such Regulations were to
apply, all of the taxable income to be recognized with respect to the Offered
Certificates would be includible in income as OID but would not be includible
again when the interest is actually received.
If the Offered Certificates are in fact issued at a greater than DE MINIMIS
discount or are treated as having been issued with OID under the Regulations,
the following rules will apply. The excess of the "stated redemption price at
maturity" of an Offered Certificate over the original issue price (in this case,
the initial offering price at which a substantial amount of the Offered
Certificates are sold to the public) will constitute OID. A Certificate Owner
must include OID in income as interest over the term of the Offered Certificate
under a constant yield method. In general, OID must be included in income in
advance of the receipt of cash representing that income. Accordingly, cash basis
taxpayers would effectively be treated as being on the accrual method and
therefore be required to include interest into income prior to the receipt of
cash representing that income. In the case of a debt instrument as to which the
repayment of principal may be accelerated as a result of the prepayment of other
obligations securing the debt instrument, the periodic accrual of OID is
determined by taking into account both the prepayment assumptions used in
pricing the debt instrument and the prepayment experience. If this provision
applies to a Class of Certificates (which is not clear), the amount of OID which
will accrue in any given "accrual period" may either increase or decrease
depending upon the actual prepayment rate. Accordingly, each Certificate Owner
should consult its own tax adviser regarding the impact to it of the OID rules
if the Offered Certificates are issued with OID. Under the Regulations, a holder
of a Certificate issued with DE MINIMIS OID must include such OID in income
proportionately as principal payments are made on a Class of Certificates.
A holder who purchases an Offered Certificate at a discount from its
adjusted issue price may be subject to the "market discount" rules of the Code.
These rules provide, in part, for the treatment of gain
61
attributable to accrued market discount as ordinary income upon the receipt of
partial principal payments or on the sale or other disposition of the Offered
Certificate, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the market discount Offered Certificate.
A subsequent holder who purchases an Offered Certificate at a premium may
elect to amortize and deduct this premium over the remaining term of the Offered
Certificate in accordance with rules set forth in Section 171 of the Code.
SALE OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption, or other taxable disposition of an Offered Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and taxable
as, accrued interest) and (ii) the Certificate Owner's tax basis in the Offered
Certificate (as increased by any OID or market discount previously included in
income by the holder and decreased by any deductions previously allowed for
amortizable bond premium and by any payments reflecting principal or OID
received with respect to such Certificate). Subject to the market discount rules
discussed above and to the one-year holding requirement for long-term capital
gain treatment, any such gain or loss generally will be long-term capital gain
or loss, provided that the Offered Certificate was held as a capital asset. The
maximum ordinary income rate for individuals, estates, and trusts exceeds the
maximum long-term capital gains rate for such taxpayers. In addition, any
capital losses realized generally may be used by a corporate taxpayer only to
offset capital gains and by an individual taxpayer only to the extent of capital
gains plus $3,000 of other income.
TAX CHARACTERIZATION OF TRUST
The Agreement permits the issuance of Classes of Certificates that are
treated for Federal income tax purposes either as indebtedness or as an interest
in a partnership. Accordingly, a Trust could be characterized either as (i) a
security device to hold Receivables securing the repayment of the Certificates
of all Series or (ii) a partnership in which the Transferor and certain classes
of Certificateholders are partners, and which has issued debt represented by
other classes of Certificates of such Trust (including the Offered
Certificates). In connection with the issuance of Certificates of any Series,
Special Tax Counsel will render an opinion to the Bank, based on the assumptions
and qualifications set forth therein, that under then current law, the issuance
of the Certificates of such Series will not cause the applicable Trust to be
characterized for Federal income tax purposes as an association (or publicly
traded partnership) taxable as a corporation. A copy of such opinion will be
filed with the Commission with a Report on Form 8-K following the issuance of a
Series of Certificates.
FUTURE LEGISLATION
On June 29, 1995, H.R. 1967 (the "Bill") was introduced in the House of
Representatives. The Bill would create a new type of entity for Federal income
tax purposes, the "financial asset securitization investment trust" (a "FASIT").
If the Bill were enacted in its present form, it would enable trusts such as a
Trust to be treated by statute as a pass-through entity not subject to
entity-level tax and to issue securities that would be treated by statute as
debt for Federal income tax purposes. It is unclear whether the Bill will be
enacted, to what extent its provisions will be modified prior to enactment, and
whether its provisions, as enacted, would enable a FASIT election to be made for
all or a portion of a Trust or the securities issued thereby. An Agreement may
provide that the Transferor may cause a FASIT election to be made for all or a
portion of a Trust if the Transferor delivers to the Trustee a Tax Opinion.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
The opinion of Special Tax Counsel with respect to Offered Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for purposes of the Code, the transaction contemplated by this
Prospectus and a related Prospectus Supplement constitutes a sale of the
Receivables (or an interest therein) to the Certificate Owners of one or more
Series or Classes and that the proper classification of the legal relationship
between the Bank and some or all of the Certificate Owners or Certificateholders
of one or more Series resulting from the transaction is that of a partnership
(including a publicly traded
62
partnership), a publicly traded partnership taxable as a corporation, or an
association taxable as a corporation. The Transferor currently does not intend
to comply with the Federal income tax reporting requirements that would apply if
any Classes of Certificates were treated as interests in a partnership or
corporation (unless, as is permitted by the Agreement, an interest in a Trust is
issued or sold that is intended to be classified as an interest in a
partnership).
If a transaction were treated as creating a partnership between the
Transferor and the Certificate Owners or Certificateholders of one or more
Series, the partnership itself would not be subject to Federal income tax
(unless it were to be characterized as a publicly traded partnership taxable as
a corporation); rather, the partners of such partnership, including the
Certificate Owners or Certificateholders of such Series, would be taxed
individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount and timing of items of
income and deductions of a Certificate Owner could differ if the Offered
Certificates were held to constitute partnership interests, rather than
indebtedness. Moreover, unless the partnership were treated as engaged in a
trade or business, an individual's share of expenses of the partnership would be
miscellaneous itemized deductions that, in the aggregate, are allowed as
deductions only to the extent they exceed two percent of the individual's
adjusted gross income, and would be subject to reduction under Section 68 of the
Code if the individual's adjusted gross income exceeded certain limits. As a
result, the individual might be taxed on a greater amount of income than the
stated rate on the Offered Certificates. Finally, assuming a transaction were
treated as creating a partnership, all or a portion of any taxable income
allocated to a Certificate Owner that is a pension, profit-sharing or employee
benefit plan or other tax-exempt entity (including an individual retirement
account) may, under certain circumstances, constitute "unrelated business
taxable income" which generally would be taxable to the holder under the Code.
If it were determined that a transaction created an entity classified as an
association or as a publicly traded partnership taxable as a corporation, a
Trust would be subject to Federal income tax at corporate income tax rates on
the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Certificate Owners, possibly including
Certificate Owners of a Class that is treated as indebtedness. Such
classification may also have adverse state and local tax consequences that would
reduce amounts available for distribution to Certificate Owners. Cash
distributions to the Certificates Owners (except any Class not recharacterized
as an equity interest in an association) generally would be treated as dividends
for tax purposes to the extent of such deemed corporation's earnings and
profits.
FOREIGN INVESTORS
As set forth above, it is expected that Special Tax Counsel will render an
opinion, upon issuance, that the Offered Certificates will be treated as debt
for U.S. Federal income tax purposes. The following information describes the
U.S. Federal income tax treatment of investors that are not U.S. persons
("Foreign Investors") if the Offered Certificates are treated as debt. The term
"Foreign Investor" means any person other than (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity organized in or
under the laws of the United States or any political subdivision thereof or
(iii) an estate or trust the income of which is includible in gross income for
U.S. Federal income tax purposes, regardless of its source.
Interest, including OID, paid to a Foreign Investor will be subject to U.S.
withholding taxes at a rate of 30% unless (i) the income is "effectively
connected" with the conduct by such Foreign Investor of a trade or business in
the United States or (ii) the Foreign Investor and each securities clearing
organization, bank, or other financial institution that holds the Offered
Certificates on behalf of the customer in the ordinary course of its trade or
business, in the chain between the Certificate Owner and the U.S. person
otherwise required to withhold the U.S. tax, complies with applicable
identification requirements and the Certificate Owner does not actually or
constructively own 10% or more of the voting stock of the Bank (or, upon the
issuance of an interest in the Trust that is treated as a partnership interest,
any holder of such interest) and is not a controlled foreign corporation with
respect to the Bank (or the holder of such an interest). Applicable
identification requirements generally will be satisfied if there is delivered to
a securities clearing organization (i) IRS Form W-8 signed under penalties of
perjury by the Certificate Owner, stating that the Certificate Owner is not a
U.S. person and providing such Certificate Owner's name and address, (ii) IRS
Form 1001,
63
signed by the Certificate Owner or such Certificate Owner's agent, claiming
exemption from withholding under an applicable tax treaty, or (iii) IRS Form
4224 signed by the Certificate Owner or such owner's agent, claiming exemption
from withholding of tax on income effectively connected with the conduct of a
trade or business in the United States; provided that in any such case (x) the
applicable form is delivered pursuant to applicable procedures and is properly
transmitted to the United States entity otherwise required to withhold tax and
(y) none of the entities receiving the form has actual knowledge that the
Certificate Owner is a U.S. person.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to U.S. Federal income tax on gain realized upon the sale,
exchange, or redemption of an Offered Certificate, provided that (i) such gain
is not effectively connected with the conduct of a trade or business in the
United States, (ii) in the case of a Certificate Owner that is an individual,
such Certificate Owner is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange, or redemption occurs, and
(iii) in the case of gain representing accrued interest, the conditions
described in the immediately preceding paragraph are satisfied.
If the interests of the Certificate Owners of a Series were reclassified as
interests in a partnership (not taxable as a corporation), such
recharacterization could cause a Foreign Investor to be treated as engaged in a
trade or business in the United States. In such event the Certificate Owner of
such Series would be required to file a Federal income tax return and, in
general, would be subject to Federal income tax, including branch profits tax in
the case of a Certificateholder that is a corporation, on its net income from
the partnership. Further, the partnership would be required, on a quarterly
basis, to pay withholding tax equal to the sum, for each foreign partner, of
such foreign partner's distributive share of "effectively connected" income of
the partnership multiplied by the highest rate of tax applicable to that foreign
partner. The tax withheld from each foreign partner would be credited against
such foreign partner's U.S. income tax liability.
If a Trust were taxable as a corporation, distributions to foreign persons,
to the extent treated as dividends, would generally be subject to withholding at
the rate of 30%, unless such rate were reduced by an applicable tax treaty.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of a Trust, the
Certificates of any Series, or the Certificate Owners of any Series under state
and local tax laws. Prospective investors are urged to consult their own tax
advisors regarding state and local tax treatment of the applicable Trust and the
Certificates of any Series, and the consequences of purchase, ownership or
disposition of the Certificates of any Series under any state or local tax law.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to the plan. ERISA also
imposes certain duties on persons who are fiduciaries of plans subject to ERISA
and prohibits certain transactions between a plan and parties in interest with
respect to such plans. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a plan is
considered to be a fiduciary of such plan (subject to certain exceptions not
here relevant). A violation of these "prohibited transaction" rules may generate
excise tax and other liabilities under ERISA and the Code for such persons.
Plan fiduciaries must determine whether the acquisition and holding of the
Certificates of a Series and the operations of the applicable Trust would result
in direct or indirect prohibited transactions under ERISA and the Code. The
operations of the Trust could result in prohibited transactions if Benefit Plans
(as defined below) that purchase the Certificates of a Series are deemed to own
an interest in the underlying assets of the
64
Trust. There may also be an improper delegation of the responsibility to manage
Benefit Plan assets if Benefit Plans that purchase the Certificates are deemed
to own an interest in the underlying assets of the Trust.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") concerning the definition of what constitutes the
"plan assets" of an employee benefit plan subject to ERISA or the Code, or an
individual retirement account ("IRA") (collectively referred to as "Benefit
Plans"), the assets and properties of certain entities in which a Benefit Plan
makes an equity investment could be deemed to be assets of the Benefit Plan in
certain circumstances. Accordingly, if Benefit Plans purchase Certificates of a
Series, the applicable Trust could be deemed to hold plan assets unless one of
the exceptions under the Final Regulation is applicable to the Trust.
The Final Regulation only applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Assuming that interests in Certificates of a
Series are equity interests, the Final Regulation contains an exception that
provides that if a Benefit Plan acquires a "publicly-offered security," the
issuer of the security is not deemed to hold plan assets. A publicly-offered
security is a security that is (i) freely transferable, (ii) part of a class of
securities that is owned by 100 or more investors independent of the issuer and
of one another and (iii) either is (A) part of a class of securities registered
under Section 12(b) or 12(g) of the Exchange Act or (B) sold to the plan as part
of an offering of securities to the public pursuant to an effective registration
statement under the Act and the class of securities of which such security is a
part is registered under the Exchange Act within 120 days (or such later time as
may be allowed by the Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred. In
addition, the Final Regulation provides that if at all times more than 75% of
the value of all classes of equity interests in Certificates of a Series are
held by investors other than benefit plan investors (which is defined as
including plans subject to ERISA, government plans and IRAs), the investing
plan's assets will not include any of the underlying assets of the applicable
Trust.
There are no restrictions imposed on the transfer of the Certificates
offered hereby, and the Certificates offered hereby will be sold as part of an
offering pursuant to an effective registration statement under the Securities
Act. Based on information provided by any underwriter, agent or dealer involved
in the distribution of the Certificates offered hereby, the Transferor will
notify the Trustee as to whether or not the Certificates of any Series (or if
there is more than one Class in a Series each Class) will be expected to be held
by at least 100 separately named persons at the conclusion of the offering. The
Transferor will not, however, determine whether there will, in fact, be at least
100 separately named persons or whether the 100-investor requirement of the
exception for publicly offered securities is satisfied as to the Certificates of
such Series (or Class). Prospective purchasers may obtain a copy of the
notification described in the second preceding sentence from the Trustee at its
Corporate Trust Department. If the Certificates of any Series (or if there is
more than one Class in a Series in any Class) are expected to be held by at
least 100 separately named persons at the conclusion of the offering, those
Certificates will be timely registered under the Exchange Act.
If interests in the Certificates of a Series fail to meet the criteria of
publicly-offered securities and the applicable Trust's assets are deemed to
include assets of Benefit Plans that are Certificateholders, transactions
involving the Trust and "parties in interest" or "disqualified persons" with
respect to such plans might be prohibited under Section 406 of ERISA and Section
4975 of the Code unless an exemption is applicable. Thus, for example, if a
participant in any Benefit Plan is a cardholder of one of the Accounts, under
DOL interpretations the purchase of interests in Certificates by such plan could
constitute a prohibited transaction. In addition, the Transferor, Servicer,
Trustee or any underwriter of such Series may be considered to be a party in
interest, disqualified person or fiduciary with respect to an investing Benefit
Plan. Accordingly, an investment by a Benefit Plan in Certificates may be a
prohibited transaction under ERISA and the Code unless such investment is
subject to a statutory or administrative exemption. Four class exemptions issued
by the DOL that could apply in such event are DOL Prohibited Transaction
Exemption ("PTE") 84-14 (Class Exemption for Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers), PTE 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds),
PTE 90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate
65
Accounts) and PTE 95-60 (Class Exemption for Certain Transactions Involving
Insurance Company General
Accounts). There is no assurance that these exemptions, even if all of the
conditions specified therein are satisfied, or any other exemption will apply to
all transactions involving the Trust's assets.
IN LIGHT OF THE FOREGOING, FIDUCIARIES OF A BENEFIT PLAN CONSIDERING THE
PURCHASE OF INTERESTS IN CERTIFICATES OF ANY SERIES SHOULD CONSULT THEIR OWN
COUNSEL AS TO WHETHER THE ASSETS OF THE TRUST WHICH ARE REPRESENTED BY SUCH
INTERESTS WOULD BE CONSIDERED PLAN ASSETS, AND WHETHER, UNDER THE GENERAL
FIDUCIARY STANDARDS OF INVESTMENT PRUDENCE AND DIVERSIFICATION, AN INVESTMENT IN
CERTIFICATES OF ANY SERIES IS APPROPRIATE FOR THE BENEFIT PLAN TAKING INTO
ACCOUNT THE OVERALL INVESTMENT POLICY OF THE BENEFIT PLAN AND THE COMPOSITION OF
THE BENEFIT PLAN'S INVESTMENT PORTFOLIO. In addition, fiduciaries should
consider the consequences that would apply if the Trust's assets were considered
plan assets, the applicability of exemptive relief from the prohibited
transaction rules, and whether all conditions for such exemptive relief would be
satisfied.
In particular, insurance companies considering the purchase of Certificates
of any Series should consult their own benefits or other appropriate counsel
with respect to the United States Supreme Court's decision in JOHN HANCOCK
MUTUAL LIFE INSURANCE CO. V. HARRIS TRUST & SAVINGS BANK, 114 S. Ct. 517 (1993)
("JOHN HANCOCK") and the applicability of PTE 95-60. In JOHN HANCOCK, the
Supreme Court held that assets held in an insurance company's general account
may be deemed to be "plan assets" under certain circumstances; however, PTE
95-60 may exempt some or all of the transactions that could occur as the result
of the acquisition and holding of the Certificates of a Series by an insurance
company general account from the penalties normally associated with prohibited
transactions. Accordingly, investors should analyze whether JOHN HANCOCK and PTE
95-60 or any other exemption may have an impact with respect to their purchase
of the Certificates of any Series.
PLAN OF DISTRIBUTION
The Transferor may sell or cause Certificates to be sold (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The related Prospectus Supplement in respect of a Series offered
hereby will set forth the terms of the offering of such Certificates, including
the name or names of any underwriters, the purchase price of such Certificates
and the proceeds to the Transferor from such sale, any underwriting discounts
and other items constituting underwriters' compensation, any initial offering
price and any discounts or concessions allowed or reallowed or paid to dealers.
Only underwriters so named in such Prospectus Supplement shall be deemed to be
underwriters in connection with the Certificates offered thereby.
Subject to the terms and conditions set forth in an underwriting agreement
(an "Underwriting Agreement") to be entered into with respect to each series of
Certificates, the Transferor will agree to sell or cause the Trust to sell to
each of the underwriters named therein and in the related Prospectus Supplement,
and each of such underwriters will severally agree to purchase from the
Transferor or Trust, as applicable, the principal amount of Certificates set
forth therein and in the related Prospectus Supplement (subject to proportional
adjustment on the terms and conditions set forth in the related Underwriting
Agreement in the event of an increase or decrease in the aggregate amount of
Certificates offered hereby and by the related Prospectus Supplement).
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the Certificates
offered hereby and by the related Prospectus Supplement if any of such
Certificates 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 Underwriting Agreement will provide that the Transferor will indemnify
the related underwriters against liabilities relating to the adequacy of
disclosure to investors, including under the Securities Act of 1933, as amended.
66
The place and time of delivery for any Series of Certificates in respect of
which this Prospectus is delivered will be set forth in the accompanying
Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Transferor by Gregory K. Thoreson, as general counsel of
First Maryland Bancorp, and Mayer, Brown & Platt, Chicago, Illinois and New
York, New York, as special counsel to the Transferor. Certain legal matters
relating to the Federal tax consequences of the issuance of the Certificates
will be passed upon for the Transferor by Mayer, Brown & Platt. Certain legal
matters relating to the issuance of the Certificates will be passed upon for the
Underwriters by Mayer, Brown & Platt.
67
INDEX OF DEFINED TERMS FOR PROSPECTUS
TERM PAGE
- ------------------------------------------- ---------
Accounts................................... 1, 3
Accumulation Period........................ 5
Additional Accounts........................ 4
Additional Interest........................ 17
Adjusted Investor Interest................. 48
Agreement.................................. 3
AIB........................................ 32
Amortization Period........................ 5
Assignment................................. 43
Automatic Additional Accounts.............. 42
Bank....................................... 1, 3
Bank Holding Company Act................... 32
Bank Portfolio............................. 4
Base Rate.................................. 26
Benefit Plans.............................. 65
BIF........................................ 44
Bill....................................... 62
Cash Collateral Account.................... 56
Cash Collateral Guaranty................... 56
Cede....................................... 2
Cedel...................................... 36
Cedel Participants......................... 36
Certificate Owner.......................... 60
Certificate Owners......................... 2
Certificate Rate........................... 5
Certificateholders......................... 2
Certificates............................... 1, 3
Class...................................... 1, 3
Closing Date............................... 11
Code....................................... 60
Collateral Interest........................ 56
Collection Account......................... 10
Commission................................. 1, 2
Controlled Accumulation Amount............. 13
Controlled Accumulation Period............. 13
Controlled Amortization Amount............. 12
Controlled Amortization Period............. 12
Controlled Deposit Amount.................. 13
Controlled Distribution Amount............. 12
Cooperative................................ 36
Corporation................................ 10
Credit Enhancement......................... 4
Credit Enhancement Percentage.............. 46
Credit Enhancement Provider................ 6
Cut-Off Date............................... 6
Defaulted Accounts......................... 6
Definitive Certificates.................... 9
Depositaries............................... 34
Depository................................. 33
Determination Date......................... 48
TERM PAGE
- ------------------------------------------- ---------
Disclosure Document........................ 8
Discount Percentage........................ 44
Distribution Account....................... 44
Distribution Date.......................... 10
DOL........................................ 65
DTC........................................ 2
DTC Participants........................... 34
Eligible Account........................... 41
Eligible Receivable........................ 42
Enhancement................................ 4
Enhancement Invested Amount................ 55
ERISA...................................... 20
Euroclear.................................. 36
Euroclear Operator......................... 36
Euroclear Participants..................... 36
Excess Finance Charge Collections.......... 16
Excess Funding Account..................... 17, 47
Exchange................................... 8
Exchange Act............................... 2
FASIT...................................... 62
FDIA....................................... 22
FDIC....................................... 6
Final Regulation........................... 65
Finance Charge Account..................... 44
Finance Charge Receivables................. 7
FIRREA..................................... 22
First National............................. 29
First Omni................................. 1, 3
Foreign Investor........................... 63
Foreign Investors.......................... 63
Full Investor Interest..................... 18
Funding Period............................. 18
Group...................................... 16
Holders.................................... 37
Identified Portfolio....................... 29
Indirect Participants...................... 34
Ineligible Receivable...................... 40
Interchange................................ 4
Interest Funding Account................... 37
Interest Period............................ 10
Investor Charge-Off........................ 17
Investor Default Amount.................... 17
Investor Interest.......................... 5
Investor Percentage........................ 6
Investor Servicing Fee..................... 17
IRA........................................ 65
IRS........................................ 60
John Hancock............................... 66
Minimum Transferor Interest................ 7
Monthly Interest........................... 16
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TERM PAGE
- ------------------------------------------- ---------
Monthly Period............................. 10
Moody's.................................... 44
New Agreement.............................. 3
New Trust.................................. 3
Offered Certificates....................... 60
OID........................................ 61
Paired Series.............................. 18, 48
Partial Amortization....................... 16
Participation Agreement.................... 42
Participations............................. 4, 42
Pay Out Event.............................. 14
Permitted Investments...................... 45
Portfolio Yield............................ 26
Pre-Funding Account........................ 18
Pre-Funding Amount......................... 18, 45
Principal Commencement Date................ 11
Principal Funding Account.................. 13
Principal Receivables...................... 6
Principal Terms............................ 8
Prospectus Supplement...................... 1
PTE........................................ 65
Purchased Interest......................... 9
Qualified Institution...................... 44
Rapid Accumulation Period.................. 14
Rapid Amortization Period.................. 15
Rating Agency.............................. 20
Receivables................................ 1, 3
Record Date................................ 33
Recoveries................................. 7
Regulations................................ 61
Removed Accounts........................... 7
Reserve Account............................ 57
TERM PAGE
- ------------------------------------------- ---------
Revolving Period........................... 11
SAIF....................................... 44
Scheduled Payment Date..................... 11
Securities Act............................. 8
Senior Certificates........................ 5
Series..................................... 1, 3
Series Supplement.......................... 3
Series Termination Date.................... 49
Service Transfer........................... 52
Servicer................................... 10
Servicer Default........................... 52
Servicing Fee.............................. 10
Shared Principal Collections............... 17
Special Tax Counsel........................ 60
Specified Trust Termination Date........... 49
Spread Account............................. 57
Standard & Poor's.......................... 44
Subordinated Certificates.................. 5
Tax Opinion................................ 8
Terms and Conditions....................... 36
Transfer Date.............................. 13
Transferor................................. 4
Transferor Certificate..................... 8
Transferor Interest........................ 6
Transferor Percentage...................... 33
Trust...................................... 1, 3
Trust I.................................... 3
Trust Portfolio............................ 31
Trust Termination Date..................... 49
Trustee.................................... 3
UCC........................................ 57
Underwriting Agreement..................... 66
ii
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered First Omni
Bank Credit Card Master Trust Asset Backed Certificates (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
such Global Securities through any of The Depository Trust Company ("DTC"),
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the
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respective Depositary, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The Global Securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the Cedel or Euroclear cash debit will be
valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date. Finally, day traders that use Cedel or
Euroclear and that purchase Global Securities from DTC Participants for delivery
to Cedel Participants or Euroclear Participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
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(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of
Certificates that are non-U.S. Persons can obtain a complete exemption form the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owner or
his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisers for
specific tax advice concerning their holding and disposing of the Global
Securities.
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