0001125282-01-502429.txt : 20011112
0001125282-01-502429.hdr.sgml : 20011112
ACCESSION NUMBER: 0001125282-01-502429
CONFORMED SUBMISSION TYPE: 424B2
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011105
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AMERICAN EXPRESS CENTURION BANK
CENTRAL INDEX KEY: 0000949348
STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189]
IRS NUMBER: 112869526
STATE OF INCORPORATION: UT
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 424B2
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-51045-01
FILM NUMBER: 1775161
BUSINESS ADDRESS:
STREET 1: 6985 UNION PARK CENTER
CITY: MIVALE
STATE: UT
ZIP: 84047
BUSINESS PHONE: 8015655000
MAIL ADDRESS:
STREET 1: 6985 UNION PARK CENTER
CITY: MIDVALE
STATE: UT
ZIP: 84047
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AMERICAN EXPRESS MASTER TRUST
CENTRAL INDEX KEY: 0000887616
STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189]
IRS NUMBER: 133632012
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 424B2
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-51045-02
FILM NUMBER: 1775162
BUSINESS ADDRESS:
STREET 1: AMERICAN EXPRESS TWR WORLD FINANCIAL CTR
STREET 2: 200 VESEY ST
CITY: NEW YORK
STATE: NY
ZIP: 10285
BUSINESS PHONE: 2126405582
MAIL ADDRESS:
STREET 1: 200 VESEY
CITY: NEW YORK
STATE: NY
ZIP: 10285
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AMERICAN EXPRESS RECEIVABLES FINANCING CORP
CENTRAL INDEX KEY: 0000887617
STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189]
IRS NUMBER: 133632012
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 424B2
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-51045
FILM NUMBER: 1775163
BUSINESS ADDRESS:
STREET 1: AMERICAN EXPRESS TWR - WORLD FIN'L CNTR
STREET 2: 200 VESEY ST
CITY: NEW YORK
STATE: NY
ZIP: 10285
BUSINESS PHONE: 2126403975
MAIL ADDRESS:
STREET 1: AMERICAN EXPRESS TWR
STREET 2: WORLD FINANCIAL CTR 200 VESEY ST
CITY: NEW YORK
STATE: NY
ZIP: 10285
424B2
1
b314171_424b2.txt
PROSPECTUS
Prospectus Supplement to Prospectus dated November 2, 2001
[AMERICAN EXPRESS LOGO]
American Express Master Trust
Issuer
American Express Receivables Financing Corporation
American Express Centurion Bank
Transferors
American Express Travel Related Services Company, Inc.
Servicer
Class A Accounts Receivable Trust Certificates, Series 2001-1
The trust will issue-
Class A Certificates
--------------------
Principal amount $750,000,000
Interest rate One-month LIBOR plus 0.09% per year
Interest payment dates Monthly, beginning December 17, 2001
Expected final payment date October 15, 2004
Legal final maturity date September 15, 2005
Price to public $750,000,000 (or 100.000%)
Underwriting discount $1,687,500 (or 0.225%)
Proceeds to transferors $748,312,500 (or 99.775%)
Credit Enhancement-
The trust also will issue $60,810,810 initial amount of Class B certificates.
The Class B certificates are subordinated to the Class A certificates.
Subordination of the Class B certificates provides credit enhancement for the
Class A certificates.
This prospectus supplement and the accompanying prospectus relate only to the
offering of the Class A certificates.
We expect to issue your series of certificates on or about November 7, 2001.
We will deliver your series of certificates in book-entry form.
Neither the SEC nor any state securities commission has approved these
certificates or determined that this prospectus supplement or the prospectus
is accurate or complete. Any representation to the contrary is a criminal
offense.
Underwriters
Salomon Smith Barney Banc One Capital Markets, Inc.
Barclays Capital
Blaylock & Partners, L.P.
Deutsche Banc Alex. Brown
Utendahl Capital Partners, L.P.
November 2, 2001
You should consider carefully the risk factors beginning on page 15 in the
accompanying prospectus.
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.
The certificates will represent interests in the trust only and will not
represent interests in or obligations of American Express Company or any of
its affiliates.
This prospectus supplement may be used to offer and sell the certificates
only if accompanied by the prospectus.
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the certificates in two separate
documents that progressively provide more detail: (1) this prospectus
supplement, which describes the specific terms of your series of certificates,
and (2) the accompanying prospectus, which provides general information about
each series of certificates which may be issued by the American Express Master
Trust, some of which may not apply to your series of certificates.
This prospectus supplement may be used to offer and sell the Class A
certificates only if accompanied by the prospectus.
This prospectus supplement may supplement disclosure in the accompanying
prospectus. If the terms of your Class A certificates vary between this
prospectus supplement and the accompanying prospectus, you should rely on the
information in this prospectus supplement.
You should rely only on the information in this prospectus supplement and
the accompanying prospectus, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the certificates in any state where the offer
is not permitted. We do not claim the accuracy of the information in this
prospectus supplement or the accompanying prospectus as of any date other than
the dates stated on their respective covers.
We include cross references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
additional related discussions. The Table of Contents in this prospectus
supplement and in the accompanying prospectus provide the pages on which these
captions are located.
Parts of this prospectus supplement and the accompanying prospectus use
defined terms. You can find these terms and their definitions under the
caption "Glossary of Defined Terms" on page S-26 in this prospectus supplement
and under the caption "Index of Defined Terms" on page 65 in the accompanying
prospectus.
------------------------
S-2
TABLE OF CONTENTS
Page
----
TRANSACTION SUMMARY .................................................... S-4
PROSPECTUS SUPPLEMENT SUMMARY .......................................... S-5
INTRODUCTION ........................................................... S-9
MATURITY CONSIDERATIONS ................................................ S-9
DOMESTIC CONSUMER CHARGE
CARD BUSINESS ......................................................... S-10
Portfolio Experience .................................................. S-10
DESIGNATED ACCOUNTS .................................................... S-13
General ............................................................... S-13
USE OF PROCEEDS ........................................................ S-15
RFC, CENTURION AND CREDCO .............................................. S-15
RFC ................................................................... S-15
Centurion ............................................................. S-15
Credco ................................................................ S-15
THE SERVICER ........................................................... S-15
SERIES PROVISIONS ...................................................... S-15
Interest Provisions ................................................... S-16
Principal Payments .................................................... S-16
Postponement of the Controlled
Accumulation Period ................................................. S-17
Page
----
Subordination ......................................................... S-17
Allocation Percentages ................................................ S-18
Principal Collections ................................................. S-18
Principal Funding Account ............................................. S-18
Reserve Account ....................................................... S-19
Distributions from the Collection Account ............................. S-20
Distribution to Class A Certificateholders ............................ S-21
Investor Charge-Offs .................................................. S-21
Addition of Accounts .................................................. S-22
Optional Repurchase ................................................... S-22
Pay Out Events ........................................................ S-22
Servicing Compensation and
Payment of Expenses ................................................. S-23
ERISA CONSIDERATIONS ................................................... S-23
UNDERWRITING ........................................................... S-24
GLOSSARY OF DEFINED TERMS .............................................. S-26
ANNEX I: OTHER SERIES ISSUED AND OUTSTANDING ........................... S-31
S-3
TRANSACTION SUMMARY
Trust and Issuer: American Express Master
Trust
Transferors: American Express
Receivables Financing
Corporation and American
Express Centurion Bank
Servicer: American Express Travel
Related Services Company,
Inc.
Trustee: The Bank of New York
Closing Date: November 7, 2001
Clearance and Settlement: DTC/Clearstream/Euroclear
Primary Trust Assets: Receivables generated in
the pay-in-full portion of
American Express(R) Card,
American Express(R) Gold
Card and Platinum Card(R)
accounts
Servicing Fee Rate: 2.0% per year
CLASS A CERTIFICATES
Initial Principal Amount: $750,000,000
Percentage of Series:* 92.5%
Anticipated Ratings Aaa/AAA
(Moody's/Standard & Poor's):
Credit Enhancement: Subordination of the Class
B certificates
Interest Rate: One-month LIBOR plus 0.09%
per year
Interest Accrual Method: Actual/360
Distribution Dates: Monthly (15th) (or the
following day if the 15th
is not a business day)
First Distribution Date: December 17, 2001
Certificate Rate Index Reset Date: Two London business days
before each distribution
date
Commencement of Controlled Accumulation The close of business on
Period (subject to adjustment) the last day of the July
2004 Due Period.
Expected Final Payment Date: October 15, 2004
Legal Final Maturity Date: September 15, 2005
ERISA eligibility (investors are cautioned Yes, subject to important
to consult with their counsel): considerations described
under "ERISA
Considerations" in this
prospectus supplement and
the accompanying
prospectus.
Debt for United States federal income tax Yes, subject to important
purposes (investors are cautioned to consult considerations described
with their counsel): under "Federal Income Tax
Consequences" in the
accompanying prospectus.
---------------
* The percentage of Series 2001-1 comprised by the Class B certificates is
7.5%.
S-4
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information about the certificates and does
not contain all the information that you need to consider in making your
investment decisions. You should carefully read this entire document and the
accompanying prospectus before you purchase any certificates.
THE TRUST
The certificates will be issued by American Express Master Trust, which is a
master trust formed in 1992.
The trustee is The Bank of New York.
THE TRANSFERORS AND THE SERVICER
American Express Centurion Bank and American Express Receivables Financing
Corporation are the transferors of the receivables to the trust and American
Express Travel Related Services Company, Inc. is the servicer of the
receivables.
OFFERED SECURITIES
The American Express Master Trust is offering $750,000,000 of Class A
certificates.
In this document, references to certificates include both Class A certificates
and Class B certificates.
Only the Class A certificates are offered by this prospectus supplement and
the accompanying prospectus.
Beneficial interests in the Class A certificates may be purchased in minimum
denominations of $1,000 and integral multiples of $1,000.
The Class A certificates are expected to be issued on November 7, 2001.
Distribution Dates
Distribution dates for the Class A certificates will be December 17, 2001 and,
after that, will be the 15th day of each month, if the 15th is a business day
and, if not, the following business day.
Interest
Interest on the Class A certificates will be paid on each distribution date.
The Class A certificates will bear interest at one-month LIBOR, as determined
each month, plus
0.09% per year.
Interest on the Class A certificates will be calculated as follows:
Number of days
Principal amount at in due period Rate for interest
end of prior month X ------------------ X period
360
You may obtain the interest rates for the current due period and the
immediately preceding due period by telephoning the trustee at (212) 328-7547.
Principal
Principal of the Class A certificates is expected to be paid in full on the
October 2004 distribution date. We are scheduled to begin accumulating
collections of principal receivables for payment to the certificateholders on
the close of business on the last day of the July 2004 Due Period, but we may
begin accumulating at a later date.
The Class A certificates are expected to be paid on the date noted above;
however, principal may be paid earlier or later. Certificateholders will not
be entitled to any premium for early or late payment of principal. If certain
adverse events known as pay out events occur, principal may be paid earlier
than expected. If collections of the credit card receivables are less than
expected or are collected more slowly than expected, then principal payments
may be delayed. If the Class A certificates are not paid on the expected final
payment date, collections of principal receivables will continue to be used to
pay principal on the certificates until the certificates are paid or until
September 15, 2005, whichever occurs first. September 15, 2005 is the legal
final maturity date.
CLASS B CERTIFICATES
At the same time the Class A certificates are issued, the trust will issue
$60,810,810 of Class B floating rate asset backed certificates as part of
Series 2001-1. The Class B certificates will be subordinated to the Class A
certificates.
The Class B certificates are not offered by this prospectus supplement and the
accompanying prospectus.
CREDIT ENHANCEMENT
Credit enhancement for the Class A certificates is provided by the
subordination of the Class B certificates.
Credit enhancement for your series is for your series' benefit only, and you
are not entitled to the
S-5
benefits of credit enhancement available to other series.
See "Series Provisions--Reallocation of Cash Flows," "--Application of
Collections" and
"--Investor Charge-Offs" in this prospectus supplement for a description of
the events which may lead to a reduction of the Class A invested amount and
the Class B invested amount.
OTHER INTERESTS IN THE TRUST
Other Series of Certificates
The trust has issued other series of certificates and expects to issue
additional series of certificates. When issued by the trust, the certificates
of each of those series also represent an interest in the assets of the trust.
You can review a summary of each series previously issued and currently
outstanding under "Annex I: Other Series Issued and Outstanding" included in
this prospectus supplement. Annex I is incorporated into this prospectus
supplement by reference. The trust may issue additional series with terms that
may be different from any other series without prior review or consent by you
or any other certificateholder.
The Transferor Certificates
The interest in the trust not represented by your series or by any other
series is the transferors' interest. The transferors' interest is represented
by the transferor certificates. The transferors' interest does not provide
credit enhancement for your series or any other series.
THE RECEIVABLES
The primary assets of the trust are receivables generated in the pay-in-full
portion of certain designated American Express(R) Card, American Express(R)
Gold Card and Platinum Card(R)* accounts, all monies due or to become due in
respect of those receivables (including amounts owing for the payment of
merchandise and services, annual membership fees and other administrative fees
and charges).
As of September 30, 2001, the amount of receivables in the trust was
$5,538,732,783.
COLLECTIONS BY THE SERVICER
The servicer will collect payments on the receivables, will deposit those
collections in an account and will keep track of yield collections and
principal collections.
ALLOCATIONS TO YOU AND YOUR SERIES
Each month, the servicer will allocate yield collections, principal
collections and the amount of receivables that are not collected and are
written off as uncollectible, called the defaulted receivables.
The amount allocated to your series will be determined based mainly on the
size of the invested amount of your series compared to the total amount of
principal receivables in the trust. At the time of issuance of the Class A
certificates, the invested amount of Series 2001-1 will be $810,810,810.
REGISTRATION OF THE CLASS A CERTIFICATES
The Class A certificates will be issued in book-entry form only and will be
registered in the name of Cede & Co., as the nominee of The Depository Trust
Company. Except in certain limited circumstances, you will not receive a
definitive certificate representing your interest. See "Description of the
Certificates--Definitive Certificates" in the accompanying prospectus.
APPLICATION OF COLLECTIONS
Yield Collections
The trust will apply yield collections for any due period in the following
order of priority:
o an amount equal to Class A monthly interest will be paid to the Class A
certificateholders;
o an amount equal to Class B monthly interest will be paid to the Class B
certificateholders;
o an amount equal to the monthly servicing fee plus any accrued monthly
servicing fee that was due but not paid on any prior distribution date will
be distributed to the servicer;
o an amount equal to unreimbursed Class A investor charge-offs will be
reinvested in the trust or otherwise used to reinstate the
certificateholders' interest during the revolving period or deposited in the
principal funding account and included in Class A monthly principal during
the controlled accumulation period or paid to Class A certificateholders
during any early amortization period;
-----------------
* American Express and Platinum Card are registered trademarks of American
Express Company.
S-6
o an amount equal to the investor default amount will be reinvested in the
trust or otherwise used to maintain the certificateholders' interest during
the revolving period or deposited in the principal funding account and
included in Class A monthly principal during the controlled accumulation
period or paid to Class A certificateholders during any early amortization
period;
o an amount equal to the unpaid accrued interest on the outstanding aggregate
principal amount of the Class B certificates will be paid to Class B
certificateholders;
o an amount equal to unreimbursed Class B investor charge-offs will be
reinvested in the trust or otherwise used to reinstate the
certificateholders' interest during the revolving period or deposited in the
principal funding account and included in Class A monthly principal during
the controlled accumulation period or paid to Class A certificateholders
during any early amortization period;
o to fund, in limited circumstances, a reserve account, as described under
"Series Provisions--Reserve Account" in this prospectus supplement; and
o to other excess allocation series or paid to the transferors as described in
"Description of the Certificates--Sharing of Excess Yield Collections Among
Excess Allocation Series" in the accompanying prospectus.
Principal Collections
The trust will apply your series' share of principal collections each month as
follows:
o First, principal collections allocated to the Class B certificates may be
reallocated, if necessary, to make required payments on the Class A
certificates not made from yield collections or funds in the reserve
account.
o During the revolving period, no principal will be paid to you or accumulated
in a trust account. Instead, all principal collections otherwise allocable
to the certificateholders' interest generally will be reinvested in the
trust or otherwise used to maintain the certificateholders' interest.
o The controlled accumulation period is scheduled to begin on the close of
business on the last day of the July 2004 Due Period, but may begin at a
later date. During the controlled accumulation period, principal collections
will be deposited in a trust account, up to a controlled deposit amount, for
payment to the Class A certificateholders and Class B certificateholders on
the expected final payment date.
o If a pay out event that applies to Series 2001-1 or to all series occurs,
the early amortization period will begin. During the early amortization
period, principal collections will be paid first to the Class A
certificateholders until they are paid in full and then to the Class B
certificateholders.
o During the controlled accumulation period, any remaining principal
collections will be reinvested in the trust or otherwise used to maintain
the certificateholders' interest. During an early amortization period, any
remaining principal collections will be first made available to other series
and then paid to the transferors.
Optional Repurchase
The transferors have the option to repurchase your Class A certificates when
the invested amount for your series has been reduced to 10% or less of the
initial invested amount. See "Series Provisions--Optional Repurchase" in this
prospectus supplement.
TAX STATUS
Orrick, Herrington & Sutcliffe LLP, as special tax counsel to the transferors,
is of the opinion that under existing law your Class A certificates will be
characterized as debt for federal income tax purposes. By your acceptance of a
Class A certificate, you will agree to treat your certificate as debt for
federal, state and local income and franchise tax purposes. See "Federal
Income Tax Consequences" in the accompanying prospectus for additional
information concerning the application of federal income tax laws.
ERISA CONSIDERATIONS
Subject to important considerations described under "ERISA Considerations" in
this prospectus supplement and in the accompanying prospectus, the Class A
certificates are eligible for purchase by persons investing assets of employee
benefit plans or individual retirement accounts.
RATING
At issuance, the Class A certificates are required to be rated in the highest
rating category by at least
S-7
one nationally recognized organization. See "Risk Factors--Rating of the
Class A Certificates" in the accompanying prospectus.
EXCHANGE LISTING
An application has been made to list the Class A certificates on the
Luxembourg Stock Exchange. We cannot guarantee that the application for the
listing will be accepted. You should consult with Deutsche Bank Luxembourg
S.A., the Luxembourg listing agent, for the Class A certificates, Boulevard
Konrad Adenauer 2, Luxembourg, phone number 352-4212-2643, to determine
whether or not the Class A certificates are listed on the Luxembourg Stock
Exchange.
S-8
INTRODUCTION
The following provisions of this prospectus supplement contain more detailed
information concerning the Class A certificates offered by this prospectus
supplement and the accompanying prospectus. The certificates will be issued by
the trust pursuant to an amended and restated pooling and servicing agreement,
dated as of May 1, 1998, among the servicer, the transferors and the trustee.
The pooling and servicing agreement has been amended and may be amended from
time to time. In this prospectus supplement and the accompanying prospectus,
the pooling and servicing agreement, together with any assignment of
Receivables in Additional Accounts, is referred to as the Agreement.
Pursuant to the Agreement, as supplemented by the Series 2001-1 supplement,
the trust is issuing $750,000,000 of Class A certificates as part of Series
2001-1. The $60,810,810 of Class B certificates (which is not offered by this
prospectus supplement and the accompanying prospectus) also is a part of
Series 2001-1. The Class A certificates and the Class B certificates represent
interests in the assets of the trust.
MATURITY CONSIDERATIONS
The Class A certificateholders are expected to receive payment of principal
in full on the Expected Final Payment Date or earlier if a Pay Out Event
occurs. If a Pay Out Event occurs, Class A certificateholders will receive
payments of principal on each Special Payment Date until the Class A Invested
Amount has been paid in full or the Series 2001-1 Termination Date occurs. The
Class B certificateholders will not begin to receive payments of principal
until the principal of the Class A certificates has been paid in full.
On each Distribution Date during the Controlled Accumulation Period,
deposits of Class A Monthly Principal will be made to the Principal Funding
Account in an amount equal to the lesser of:
(a) the Controlled Deposit Amount, and
(b) the sum of:
(i) the Fixed Allocation Percentage of all Principal Collections received
during the immediately preceding Due Period,
(ii) the amount of any Series Undistributed Principal Collections on
deposit in the Collection Account on such Distribution Date, and
(iii) amounts available to pay the Investor Default Amount and reimburse
Class A Investor Charge-Offs and Class B Investor Charge-Offs with respect
to such Distribution Date.
Additionally, Excess Principal Collections allocable to the Class A
certificates may be used to pay the Controlled Deposit Amount. Assuming that
(a) the annualized receivable turnover rate for the Designated Accounts is not
less than 2.75, (b) the Yield Factor equals 3.0%, (c) Receivables remain
constant at the amount outstanding as of September 30, 2001, and (d) a Pay Out
Event does not occur during the Controlled Accumulation Period, the
transferors expect that on the Expected Final Payment Date there will be
sufficient funds on deposit in the Principal Funding Account to pay the Class
A Invested Amount in full. The annualized receivable turnover rate described
above is less than the lowest receivable turnover rate shown in the
"Receivable Turnover Rates for the Portfolio" table shown under "Domestic
Consumer Charge Card Business--Portfolio Experience" in this prospectus
supplement. However, there can be no assurance that any other series issued
prior or concurrently with Series 2001-1 with a revolving period ending after
the Revolving Period for Series 2001-1 will not enter into an amortization
period or accumulation period prior to the Expected Final Payment Date.
Further, the actual rate of accumulation and payment of principal will depend,
among other factors, on the rate of repayment, the timing of the receipt of
such repayments, the Yield Factor, the receivable turnover rate and the rate
of default by Cardmembers.
Should a Pay Out Event occur with respect to Series 2001-1, the Early
Amortization Period will begin on the day that Pay Out Event occurs or is
deemed to have occurred. During the Early Amortization Period, distributions
of principal to the Class A certificateholders will not be limited by the
Controlled Deposit Amount. If the Receivables are sold, disposed of or
otherwise liquidated following a Pay Out Event or in connection with the
S-9
Series 2001-1 Termination Date, Class A Monthly Principal will be payable to
certificateholders on the following Distribution Date.
The transferors cannot predict, and no assurance can be given, as to the
accountholder monthly payment rates that will actually occur in any future
period, as to the actual rate of payment of principal of Series 2001-1 or
whether the terms of any previously or subsequently issued series might have
an impact on the amount or timing of any such payment of principal. In
addition, the amount of outstanding Receivables and the delinquencies, charge-
offs and new borrowings on the accounts may vary from month to month due to
seasonal variations, the availability of other sources of credit, legal
factors, general economic conditions and spending and borrowing habits of
individual account holders. See "Risk Factors" and "Description of the
Certificates--Sharing of Excess Yield Collections Among Excess Allocation
Series" in the accompanying prospectus.
There can be no assurance that collections of principal Receivables with
respect to the Trust Portfolio, and thus the rate at which certificateholders
could expect to receive payment of principal on their certificates during the
Early Amortization Period or the rate at which the Principal Funding Account
could be funded during the Controlled Accumulation Period, will be similar to
the historical experience set forth in the table "Monthly Payment Rates for
the Portfolio" in this prospectus supplement. As described under "Series
Provisions--Principal Payments" in this prospectus supplement, the transferors
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 Invested Amount on the Expected Final Payment
Date.
The trust, as a master trust, has issued three other series which are
currently outstanding, and may issue additional series from time to time.
There can be no assurance that the terms of any such series might not have an
impact on the timing or amount of payments received by certificateholders.
Further, if a Pay Out Event occurs, the average life and maturity of the Class
A certificates could be significantly reduced, thereby reducing the
anticipated yield on such certificates.
Due to the reasons set forth above, there can be no assurance that deposits
in the Principal Funding Account will be made on or prior to the Expected
Final Payment Date in an amount equal to the Class A Invested Amount. See
"Risk Factors" in the accompanying prospectus.
DOMESTIC CONSUMER CHARGE CARD BUSINESS
Portfolio Experience
The following tables set forth the historical receivable turnover rate,
payment rate, loss experience, periodic yield computation and delinquency
experience for each of the periods shown for the entire Portfolio.
Because the Designated Accounts are only a portion of the Portfolio, actual
experience with respect to the Designated Accounts may have been different
from that of the Portfolio. Because the Designated Accounts have been selected
from the Portfolio in a manner not believed to be adverse to
certificateholders and represent a sizable portion of the Portfolio, TRS and
the transferors believe that the performance of the Portfolio reflected in the
following tables is indicative of the historical performance of the Designated
Accounts. Because the Designated Accounts are a fixed pool of Accounts,
receivable turnover rate, payment rate, loss experience, periodic yield
computation, delinquency experience and the rate of receivable growth with
respect to the Designated Accounts may be different from that of the Portfolio
in the future.
Receivable Turnover Rate and Payment Rate Experience. The Accounts are
designed for use as a method of payment for the purchase of merchandise and
services, and, except in the limited circumstances related to Recovery
Arrangements and described under "Domestic Consumer Charge Card Business--
Collection Efforts" in the accompanying prospectus, account balances are due
in full each month. Therefore, Accounts cannot be used by Cardmembers for the
purpose of financing these purchases. In contrast to revolving credit plan
products which do not require payment in full each month, the requirement that
Account balances be paid in full each month creates a high monthly payment
rate and, therefore, Account balances turn over rapidly relative to charge
volume. The following two tables illustrate this product characteristic based
on the historical Portfolio experience.
S-10
Receivable Turnover Rates for the Portfolio
(Dollars in thousands)
Nine Months Ended
September 30, Years Ended December 31,
----------------- ---------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
----------------- ----------- ----------- ----------- ----------- -----------
Charge Volume and Fees(1) ............ $61,473,939 $84,750,964 $75,431,288 $68,554,377 $65,311,110 $62,207,966
Average Receivables Outstanding(2) ... $ 9,508,776 $ 9,629,369 $ 8,436,247 $ 7,758,109 $ 7,808,748 $ 7,385,284
Receivables Turnover Rate(3) ......... 8.62 8.80 8.94 8.84 8.36 8.42
---------------
(1) Charge Volume and Fees is the sum of (a) amounts charged by Cardmembers for
merchandise and services for each period shown and (b) all membership and
administrative fees billed to Accounts for each period shown. Charge Volume
and Fees includes amounts billed under the Privileged Assets program, which
amounts are not material.
(2) Average Receivables Outstanding is the arithmetic average of the month end
Portfolio balances including the opening Portfolio balance for each period
shown.
(3) Receivable Turnover Rate is calculated by dividing Charge Volume and Fees
by Average Receivables Outstanding for each period shown.
Monthly Payment Rates for the Portfolio(1)
Nine Months Ended
September 30, Years Ended December 31,
----------------- ---------------------------------------
2001 2000 1999 1998 1997 1996
----------------- ----- ----- ----- ----- -----
Monthly Average Rate ............................................... 72.44% 75.36% 81.11% 80.76% 77.94% 76.09%
Highest Monthly Rate ............................................... 77.70% 80.69% 85.01% 86.92% 81.07% 78.48%
Lowest Monthly Rate ................................................ 63.72% 69.25% 70.27% 70.21% 67.86% 69.93%
---------------
(1) Monthly Payment Rate is calculated by dividing total collections received
(excluding recoveries on charged-off Receivables) during each month by that
month's opening billed balance.
There can be no assurance that the receivable turnover rate and the monthly
payment rate, and thus the rate at which certificateholders can expect
principal to be paid on and after the Principal Commencement Date, including
on or following the Expected Final Payment Date or during any Early
Amortization Period, will be similar to the historical Portfolio experience
set forth above.
Periodic Yield Computation. Receivables originated under the Accounts,
consisting of amounts charged by Cardmembers for merchandise and services,
annual membership fees and certain other administrative fees billed to
Cardmembers on the Accounts, are not (except in the limited circumstances
related to Recovery Arrangements and described under "Domestic Consumer Charge
Card Business--Collection Efforts" in the accompanying prospectus) subject to
a monthly finance charge. As a result, in order to provide yield to the trust
on the related Receivables, pursuant to the Agreement a portion of the
Collections on the Receivables in the Designated Accounts received in any Due
Period equal to the product of Collections and the Yield Factor will be
treated as Yield Collections and the remainder of the related Collections will
be treated as Principal Collections.
The dollar amounts representing Computed Yield in the table below have been
derived by applying a Yield Factor of 3.0% (which is, as of the date hereof,
the Yield Factor under the Agreement) to historical monthly collections of
receivables (excluding recoveries on charged-off receivables) in the Accounts
for each period shown. Each of those dollar amounts is divided by Charge
Volume and Fees for the appropriate period to produce a Computed Yield for the
Portfolio. To the extent that Charge Volume and Fees did not equal collections
for any given period, there is a difference between the Computed Yield as a
Percentage of Charge Volume and Fees and the assumed Yield Factor of 3.0%.
S-11
Periodic Yield Computation for the
Portfolio Assuming a 3.0% Yield Factor
(Dollars in thousands)
Nine Months Ended
September 30, Years Ended December 31,
----------------- ----------------------------------------------------------------
2001 2000 1999 1998 1997 1996
----------------- ---------- ---------- ---------- ---------- ----------
Computed Yield(1) ......................... $1,723,428 $2,359,422 $2,228,439 $2,093,225 $1,993,964 $1,875,807
Computed Yield as a Percentage of Charge
Volume and Fees(2)....................... 2.80% 2.78% 2.95% 3.05% 3.05% 3.02%
---------------
(1) Computed Yield is the dollar amount equal to the product of the 3.0%
assumed Yield Factor and collections (excluding recoveries on charged-off
receivables) for each period shown.
(2) Computed Yield as a Percentage of Charge Volume and Fees may not equal the
3.0% assumed Yield Factor because Charge Volume and Fees may not equal
collections (excluding recoveries on charged-off receivables) for the
periods shown.
There can be no assurance that the yield experience for Receivables in
Designated Accounts will be similar to the periodic yield computation for the
Portfolio set forth in the table. The actual yield experience will vary month
to month due to variations in receivable turnover rates, payment rates and
Cardmember charge activity. The actual yield experience will also be affected
by any changes to the Yield Factor. Pursuant to the Agreement, without notice
to or the consent of certificateholders, the transferors have the ability to
change the Yield Factor. The transferors may not, however, reduce the Yield
Factor below 3.0% or increase it above 5.0%. Further, the transferors may not
change the Yield Factor if a Pay Out Event has occurred and is continuing, or,
as a result of that change, their reasonable expectation is that a Pay Out
Event would occur. See "Risk Factors--Ability to Change Yield Factor" in the
accompanying prospectus.
Loss Experience. The following table sets forth the Portfolio's historical
gross loss, recovery and net loss experience for the periods shown. Due to the
Portfolio's Receivable Turnover Rate and Monthly Payment Rate, gross losses,
recoveries and net losses are expressed as a percentage of Charge Volume and
Fees.
Loss Experience for the Portfolio
(Dollars in thousands)
Nine Months Ended
September 30, Years Ended December 31,
----------------- ------------------------------------------------------
2001 2000 1999 1998 1997 1996
----------------- -------- -------- -------- -------- --------
Gross Losses(1) ..................................... $337,663 $351,833 $348,342 $434,143 $495,049 $478,656
Gross Losses as a Percentage of Charge Volume and
Fees............................................... 0.55% 0.42% 0.46% 0.63% 0.76% 0.77%
Recoveries .......................................... $ 66,187 $ 83,208 $ 91,326 $ 91,365 $102,317 $ 98,970
Recoveries as a Percentage of Charge Volume and Fees 0.11% 0.10% 0.12% 0.13% 0.16% 0.16%
Net Losses .......................................... $241,477 $268,625 $257,016 $342,779 $392,732 $379,686
Net Losses as a Percentage of Volume and Fees ....... 0.44% 0.32% 0.34% 0.50% 0.60% 0.61%
There can be no assurance that the loss experience for the Designated
Accounts in the future will be similar to the historical Portfolio experience
set forth above.
Periodic Net Yield Computation. Computed Net Yield is the dollar amount
equal to Computed Yield minus Net Losses. The table below sets forth the
Computed Net Yield for the periods shown.
S-12
Periodic Net Yield Computation for
the Portfolio Assuming a 3.0% Yield Factor
(Dollars in thousands)
Nine Months Ended
September 30, Years Ended December 31,
----------------- ----------------------------------------------------------------
2001 2000 1999 1998 1997 1996
----------------- ---------- ---------- ---------- ---------- ----------
Computed Net Yield(1) ..................... $1,451,951 $2,090,797 $1,971,423 $1,750,446 $1,601,233 $1,496,121
Computed Net Yield as a Percentage of
Charge Volume and Fees................... 2.36% 2.47% 2.61% 2.55% 2.45% 2.41%
The ability of the trust to generate sufficient yield to pay interest to
certificateholders and to pay the Monthly Servicing Fee with respect to each
series depends upon the Monthly Payment Rate, the Yield Factor, Net Losses and
the generation of new Receivables. Based on the Portfolio experience described
in the foregoing tables, the following example illustrates how these variables
would interact to produce yield to the trust. For the year ended December 31,
2000, the Computed Net Yield as a Percentage of Charge Volume and Fees was
2.47% and the Receivable Turnover Rate (total Charge Volume and Fees divided
by Average Receivables Outstanding) was 8.80. The product of these two
variables results in a net yield as a percentage of Average Receivables
Outstanding of 21.70% for the year ended December 31, 2000. There can be no
assurance that the experience for the Designated Accounts in the future will
be similar to the historical Portfolio experience set forth above.
Delinquency Experience. The table below sets forth the Portfolio's
delinquency experience for the periods shown.
Delinquency Experience for the Portfolio
(Dollars in thousands)
Nine Months Ended
September 30, Average of Twelve Months Ended December 31,
------------------ ----------------------------------------
2001 2000 1999
------------------ ------------------ ------------------
Number of Days
Delinquent(1) Delinquent Delinquent Delinquent
-------------- Amount % (2) Amount % (2) Amount % (2)
---------- ----- ---------- ----- ---------- -----
30 to 59 Days ................................................. $140,298 1.60% $129,665 1.48% $112,448 1.45%
60 to 89 Days ................................................. 63,393 0.72 53,556 0.61 47,282 0.61
90 to 119 Days ................................................ 46,992 0.54 38,538 0.44 34,684 0.45
120 or More Days .............................................. 177,434 2.02 149,654 1.70 141,914 1.83
-------- ---- -------- ---- -------- ----
Total(3) ...................................................... $428,117 4.88% $371,412 4.23% $336,327 4.34%
======== ==== ======== ==== ======== ====
Average of Twelve Months Ended December 31,
--------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
Number of Days
Delinquent(1) Delinquent Delinquent Delinquent
-------------- Amount % (2) Amount % (2) Amount % (2)
---------- ----- ---------- ----- ---------- -----
30 to 59 Days ................................................. $124,949 1.72% $144,731 2.02% $147,391 2.13%
60 to 89 Days ................................................. 52,520 0.72 65,403 0.91 66,748 0.97
90 to 119 Days ................................................ 38,110 0.52 48,919 0.68 50,971 0.74
120 or More Days .............................................. 157,265 2.17 194,086 2.71 189,372 2.74
-------- ---- -------- ---- -------- ----
Total(3) ...................................................... $372,844 5.13% $453,140 6.32% $454,481 6.58%
======== ==== ======== ==== ======== ====
---------------
(1) Delinquency is measured as the number of days after a charge is first
included within an unpaid "Previous Balance" on any monthly billing
statement and is determined by reference to the payment status of each
account as of the cycle billing date occurring during the applicable month.
(2) Percentage is calculated by dividing delinquent amounts by the arithmetic
average of the month-end billed aggregate balances, inclusive of the
opening billed aggregate balance, for the appropriate period. Delinquent
amounts are the arithmetic average of the month-end billed delinquencies by
category, inclusive of the opening billed delinquent amount for the
appropriate period.
(3) Delinquent Amounts and Percentages may not total due to rounding.
DESIGNATED ACCOUNTS
General
As of September 30, 2001, the Designated Accounts (excluding Accounts
charged off and Accounts closed at the Cardmembers' request) consisted of
9,148,136 Accounts. The Receivables in the Designated Accounts as of September
30, 2001, totaled $5,538,732,783 and the average Designated Account
Receivables balance was $605.45. As of September 30, 2001, approximately 96.3%
of the Designated Accounts by Receivable balance had been in existence for at
least five years. By Receivable balance, 14.4%, 13.3%, 9.7%, 8.3% and 7.6% of
the Designated Accounts have Cardmember billing addresses in New York,
California, Texas, Florida and New Jersey, respectively. The remainder of the
Designated Accounts have billing addresses in the remaining states of
S-13
the United States (including certain of its territories and possessions), none
of which represents more than 3.74% by Receivable balance of the Designated
Accounts. The following tables summarize the Designated Accounts by various
criteria as of September 30, 2001. Data presented below for the Designated
Accounts does not include (i) Accounts charged-off and (ii) Accounts closed at
the Cardmembers' request.
Composition of Designated Accounts by Account Balance
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Balance Range Accounts Accounts Outstanding(1) Outstanding
--------------------- --------- ---------- -------------- -----------
Credit Balance .......................................................... 129,616 1.4% $ (54,639,404) -1.0%
No Balance .............................................................. 4,814,933 52.6 0 0.0
$1 - $1,000 ............................................................. 2,894,797 31.6 899,420,730 16.2
$1,001 - $5,000 ......................................................... 1,092,541 11.9 2,366,352,308 42.7
$5,001 - $10,000 ........................................................ 148,890 1.6 1,015,170,897 18.3
$10,001 - More .......................................................... 67,359 0.7 1,312,428,252 23.7
--------- ----- -------------- -----
Total(2) ................................................................ 9,148,136 100.0% $5,538,732,783 100.0%
========= ===== ============== =====
---------------
(1) Receivables Outstanding include amounts billed under the Privileged Assets
program, which amounts are not material.
(2) Percentages and Receivables Outstanding may not total due to rounding.
Composition of Designated Accounts by Payment Status
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Payment Status(1) Accounts(2) Accounts Outstanding(3) Outstanding
----------------- ----------- ---------- -------------- -----------
Current to 30 days delinquent ......................................... 9,015,454 98.5% $5,340,472,547 96.4%
30 to 60 days delinquent .............................................. 71,398 0.8 79,634,392 1.4
61 to 90 days delinquent .............................................. 21,116 0.2 29,692,044 0.5
91 or more days delinquent ............................................ 40,168 0.4 88,933,800 1.6
--------- ----- -------------- ------
Total(4) .............................................................. 9,148,136 100.0% $5,538,732,783 100.00%
========= ===== ============== ======
---------------
(1) Delinquency is measured as the number of days after a charge is first
included within an unpaid "Previous Balance" on any monthly billing
statement and is determined by reference to the payment status of each
Designated Account as of the cycle billing date occurring during September
2001.
(2) The payment status of each Designated Account is based on the oldest
balance in the related Account.
(3) Receivables Outstanding include amounts billed under the Privileged Assets
program, which amounts are not material.
(4) Percentages and Receivables Outstanding may not total due to rounding.
Composition of Designated Accounts by Age
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Age(1) Accounts Accounts Outstanding(2) Outstanding
------ --------- ---------- -------------- -----------
Less than 12 months ..................................................... 1,924 0.0% $ 1,476,536 0.0%
12-23 months ............................................................ 80,206 0.9 62,689,452 1.1
24-35 months ............................................................ 85,782 0.9 75,453,343 1.4
36-47 months ............................................................ 23,676 0.3 31,923,738 0.6
48-59 months ............................................................ 27,713 0.3 35,227,658 0.6
Greater than 59 months .................................................. 8,928,835 97.6 5,331,962,056 96.3
--------- ----- -------------- -----
Total(3) ................................................................ 9,148,136 100.0% $5,538,732,783 100.0%
========= ===== ============== =====
(footnotes on next page)
S-14
---------------
(1) Determined by reference to date of initial Cardmembership.
(2) Receivables Outstanding include amounts billed under the Privileged Assets
program, which amounts are not material.
(3) Percentages and Receivables Outstanding may not total due to rounding.
USE OF PROCEEDS
The net proceeds from the sale of the Class A certificates will be paid to
the transferors. The transferors will use such proceeds for general corporate
purposes.
RFC, CENTURION AND CREDCO
RFC
American Express Receivables Financing Corporation, or RFC, was incorporated
under the laws of the State of Delaware on July 30, 1991. All of its
outstanding common stock is owned by American Express Travel Related Services
Company, Inc., which is referred to in this prospectus supplement as TRS. TRS
is a wholly owned subsidiary of American Express Company, a publicly-held
corporation engaged principally, through its subsidiaries, in providing travel
related services, investor diversified financial services and international
banking services throughout the world. RFC was organized for the limited
purpose of issuing securities of the type offered hereby, purchasing, holding,
owning and selling receivables and any activities incidental to and necessary
or convenient for the accomplishment of such purposes. Neither TRS, as the
stockholder of RFC, nor RFC's board of directors intends to change the
business purpose of RFC. RFC's executive offices are located at 40 Wall
Street, Mail Stop 10-19-06, New York, New York 10005.
Centurion
American Express Centurion Bank, or Centurion, was incorporated in 1987
under the laws of the State of Utah as an industrial loan company. It received
FDIC insurance in 1989. Its principal office is located at 6985 Union Park
Center, Midvale, Utah 84047. Centurion is a wholly owned subsidiary of TRS.
Centurion is the surviving company of a 1996 merger with an affiliated bank
that was also named American Express Centurion Bank. Prior to the merger, the
affiliated bank was one of the transferors to the trust. In connection with
the merger, Centurion assumed all of the rights and obligations of the
affiliated bank as a transferor under the Agreement and with respect to the
Accounts owned by it.
As of December 31, 2000, Centurion had total deposits of approximately $4.6
billion, total assets of approximately $17.9 billion and total equity capital
of approximately $1.7 billion. Centurion had net income of approximately $564
million for the year ended December 31, 2000.
Credco
Credco is a wholly owned subsidiary of TRS, primarily engaged in the
business of purchasing certain receivables generated by TRS and its
subsidiaries. Credco's principal office is located at 301 North Walnut Street,
Wilmington, Delaware 19801.
As of December 31, 2000, and based on the Annual Report on Form 10-K of
Credco at such date, Credco had total assets of approximately $28.3 billion
and total equity capital of approximately $2.2 billion. Credco had net income
of approximately $286 million for the one-year period ended December 31, 2000.
THE SERVICER
As of December 31, 2000, TRS, the servicer, had approximately $73.0 billion
in total assets, approximately $66.9 billion in total liabilities and
redeemable preferred stock and approximately $6.1 billion in shareholders'
equity.
SERIES PROVISIONS
The Class A certificates will be issued pursuant to the Agreement and the
Series 2001-1 supplement specifying the principal terms of the certificates,
the forms of which have been filed as exhibits to the Registration Statement
of which this prospectus supplement and the accompanying prospectus are a
part. The following
S-15
summary describes certain terms applicable to the certificates. Reference
should be made to the accompanying prospectus for additional information
concerning the Class A certificates and the Agreement.
Interest Provisions
The Class A certificates will accrue interest at a rate of 0.09% per year
above LIBOR prevailing on the related LIBOR Determination Date with respect to
the related Due Period.
Interest will be paid on each Distribution Date, beginning on December 17,
2001. Interest for any Distribution Date will accrue from and including the
preceding Distribution Date (or, in the case of the first Distribution Date,
from and including the series issuance date) to but excluding such
Distribution Date. On each distribution date, interest due to the Class A
certificateholders will be equal to the product of (i) the actual number of
days in the related Due Period divided by 360, (ii) the Class A certificate
rate in effect for the related Due Period and (iii) the outstanding principal
balance of the Class A certificates as of the preceding Record Date (or, in
the case of the first Distribution Date, as of the series issuance date).
Interest due on the Class A 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 Class A certificate rate plus 2% per
year. Such additional interest will accrue on the same basis as interest on
the Class A certificates, and will accrue from the Distribution Date such
overdue interest became due to but excluding the Distribution Date on which
such additional interest is paid.
The Class B certificates will accrue interest at a rate not to exceed 1.00%
per year above LIBOR on the related LIBOR Determination Date with respect to
the related Due Period.
You may obtain the Class A certificate rate and the Class B certificate rate
applicable to the then current and immediately preceding Due Periods by
telephoning the trustee at its corporate trust office at (212) 328-7547.
Principal Payments
Revolving Period
Series 2001-1 will have a Revolving Period when the trust will not pay or
accumulate principal for the Class A certificates or the Class B certificates.
The Revolving Period starts on the series issuance date and ends on the
earlier of the Controlled Accumulation Period and the Early Amortization
Period.
During the Revolving Period, no principal payments will be made to or for
the benefit of the Series 2001-1 certificateholders. Instead, collections of
principal Receivables allocable to the Certificateholders' Interest will be
o allocated to one or more series which are in an amortization period or an
accumulation period to cover principal payments due to that series'
investor certificateholders; or
o if no such series is then amortizing or accumulating principal, paid to
the transferors to purchase additional Receivables to maintain the
Certificateholders' Interest or held as Undistributed Principal
Collections.
Controlled Accumulation Period
Unless a Pay Out Event has occurred, the Controlled Accumulation Period is
expected to begin at the close of business on the last day of the July 2004
Due Period, but may be delayed as described herein, and ends on the earliest
to occur of:
o the commencement of an Early Amortization Period;
o the payment in full of the Invested Amount; and
o the Series 2001-1 Termination Date.
On each Distribution Date during the Controlled Accumulation Period (on or
prior to the Expected Final Payment Date), the trustee will deposit into the
Principal Funding Account all Principal Collections allocable to the
Certificateholders' Interest, Excess Principal Collections and certain other
amounts comprising Class A Monthly Principal. Unless a Pay Out Event with
respect to Series 2001-1 has occurred, amounts on deposit in the Principal
Funding Account will be paid on the Expected Final Payment Date:
o first to Class A certificateholders (in an amount not to exceed the Class
A Invested Amount) and
S-16
o then to Class B certificateholders (to the extent such funds exceed the
Class A Invested Amount and in an amount not to exceed the Class B
Invested Amount).
Early Amortization Period
If a Pay Out Event with respect to Series 2001-1 occurs, the Early
Amortization Period will begin and any amount on deposit in the Principal
Funding Account will be paid on the first Special Payment Date to the Class A
certificateholders (up to the Class A Invested Amount) and then to the Class B
certificateholders (up to the Class B Invested Amount). If on the Expected
Final Payment Date amounts on deposit in the Principal Funding Account are
insufficient to pay the Class A Invested Amount and the Class B Invested
Amount, a Pay Out Event will occur and the Early Amortization Period will
begin. On each Distribution Date following such Pay Out Event, the Class A
certificateholders will receive distributions of Class A Monthly Principal and
Class A Monthly Interest until the Class A Invested Amount has been paid in
full. After the Class A certificateholders receive payment in full of the
Class A Invested Amount, the Class B certificateholders will be entitled to
receive an amount equal to the Class B Invested Amount.
Postponement of the Controlled Accumulation Period
The Controlled Accumulation Period currently is expected to begin at the
close of business on the last day of the July 2004 Due Period. The date on
which the Controlled Accumulation Period actually begins, however, may be
delayed if the controlled accumulation period length (determined as described
below) is less than the number of months remaining between each period length
determination date and the Expected Final Payment Date. Beginning on the
Determination Date immediately preceding the May 2004 Distribution Date and on
each period length determination date thereafter until the Controlled
Accumulation Period actually begins, the transferors will determine the
controlled accumulation period length based on the lowest monthly payment rate
on the Receivables for the prior 12 months and the amount of principal
distributable to the certificateholders of all outstanding series which are
not in their revolving periods. If the controlled accumulation period length
is less than 2 months, the servicer may, at its option, postpone the start of
the Controlled Accumulation Period such that the number of months in the
Controlled Accumulation Period will be equal to or exceed the controlled
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 invested amounts of
certain other series which are expected to be in their revolving periods
during the Controlled Accumulation Period and on increases in the payment rate
on the Receivables occurring after the series issuance date. The controlled
accumulation period length will not be less than one month and will not be
shorter than the period determined as of the first date of determination
unless the trust has issued another series of investor certificates after that
date and such series is in its revolving period. If the start of the
Controlled Accumulation Period is delayed in accordance with the foregoing,
and if a Pay Out Event occurs after the date originally scheduled as the start
of the Controlled Accumulation Period, then it is probable that the Class A
certificateholders and Class B certificateholders would receive some of their
principal later than if the Controlled Accumulation Period had not been
delayed.
Subordination
The Class B certificates will be subordinated to the extent necessary to
fund certain payments with respect to the Class A certificates. Certain
principal payments otherwise allocable to the Class B certificateholders may
be reallocated to cover amounts in respect of the Class A certificates and the
Class B Invested Amount may be reduced. To the extent the Class B Invested
Amount is reduced, the percentage of yield collections allocated to the Class
B certificateholders in subsequent Due Periods will be reduced. Moreover, to
the extent the amount of such reduction in the Class B Invested Amount is not
reimbursed, the amount of principal distributable to the Class B
certificateholders will be reduced. If the Class B Invested Amount is reduced
to zero, the Class A certificateholders will bear directly the credit and
other risks associated with their undivided interest in the trust. In the
event of a reduction in the Class A Invested Amount or the Class B Invested
Amount, the amount of principal and interest available to fund payments with
respect to the Class A certificates and the Class B certificates will be
decreased. See "--Allocation Percentages," "--Reallocation of Cash Flows," "--
Application of Collections--Excess Yield Collections" below.
S-17
Allocation Percentages
Pursuant to the Agreement, the servicer will allocate among Series 2001-1,
all other series outstanding and the transferors' interest all Yield
Collections, all Principal Collections and the amount of all Defaulted
Receivables with respect to the related Due Period as described under
"Description of the Certificates--Allocation Percentages" in the accompanying
prospectus and, with respect to Series 2001-1 specifically, as described
below.
During the Revolving Period, the Controlled Accumulation Period, any period
after the Expected Final Payment Date and during any Early Amortization
Period, Yield Collections and the Defaulted Receivables for any Due Period
will be allocated to Series 2001-1 based on the Floating Allocation
Percentage.
During the Revolving Period, Principal Collections also will be allocated to
Series 2001-1 based on the Floating Allocation Percentage. To maintain the
Certificateholders' Interest during the Revolving Period, the Floating
Allocation Percentage of all Principal Collections will be reinvested in the
trust or treated as Excess Principal Collections and applied as described
below under "--Principal Collections for all Series" and the Transferors'
Percentage of such Principal Collections will be paid to the transferors.
During the Controlled Accumulation Period, any period after the Expected Final
Payment Date and during any Early Amortization Period, all Principal
Collections will be allocated to Series 2001-1 based on the Fixed Allocation
Percentage. All remaining Principal Collections will be allocated to the
holders of other series, if any, and to the transferors' interest.
Principal Collections
With respect to the Controlled Accumulation Period, Principal Collections
for any Due Period allocated to the Certificateholders' Interest will first be
used to make required deposits to the Principal Funding Account. With respect
to any Early Amortization Period, those Principal Collections will be used to
make payments to the certificateholders. Each month, the servicer will
determine the amount of Excess Principal Collections for any Due Period.
During the Revolving Period, all Principal Collections allocable to the
Certificateholders' Interest (including Yield Collections that are deemed to
be Principal Collections and treated as Excess Principal Collections) will be
treated as Excess Principal Collections. The servicer will allocate the Excess
Principal Collections to cover any Principal Shortfalls. Excess Principal
Collections will not be used to cover investor charge-offs for any series. If
Principal Shortfalls exceed Excess Principal Collections for any Due Period,
Excess Principal Collections will be allocated pro rata among the applicable
series based on the relative amounts of principal shortfalls. To the extent
that Excess Principal Collections exceed Principal Shortfalls, the balance
will, subject to certain limitations, be paid to the transferors.
Principal Funding Account
The trustee, on behalf of the trust, will establish and maintain, for the
benefit of the Class A certificateholders and Class B certificateholders, the
Principal Funding Account. During the Controlled Accumulation Period, the
servicer will transfer Principal Collections, Excess Principal Collections
allocated to Series 2001-1 and other amounts described herein to be treated in
the same manner as Principal Collections from the Collection Account to the
Principal Funding Account as described below under "--Application of
Collections."
Unless a Pay Out Event has occurred with respect to Series 2001-1, all
amounts on deposit in the Principal Funding Account on any Distribution Date
(after giving effect to any deposits to, or withdrawals from, the Principal
Funding Account to be made on such Distribution Date) will be invested by the
trustee at the direction of the servicer in Eligible Investments that mature
on or before the following Distribution Date. On each Distribution Date for
the Controlled Accumulation Period (on or prior to the Expected Final Payment
Date), the interest and other investment income (net of losses and investment
expenses) earned on such investments will be withdrawn from the Principal
Funding Account and will be treated as Yield Collections. If, for any such
Distribution Date, these amounts are less than the Covered Amount for such
Distribution Date, Yield Collections will be used to cover the amount of any
such shortfall (including a withdrawal from the Reserve Account, if available,
as described below under "Reserve Account"). The Available Reserve Account
Amount at any time will be limited and there can be no assurance that
sufficient funds will be available to fund any such shortfall.
S-18
Reserve Account
The trustee, on behalf of the trust, will establish and maintain, for the
benefit of the Class A certificateholders, the Reserve Account. The Reserve
Account will be established to assist with the subsequent distribution of
interest during the Controlled Accumulation Period. On each Distribution Date
from and after the funding of the Reserve Accounts begins, but prior to the
termination of the Reserve Account, the trustee, acting pursuant to the
servicer's instructions, will apply 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 will be funded no later
than three months prior to the commencement of the Controlled Accumulation
Period.
On each Distribution Date, after giving effect to any deposit to be made to,
and any withdrawal to be made from, the Reserve Account on such Distribution
Date, the trustee will withdraw from the Reserve Account an amount equal to
the excess, if any, of the amount on deposit in the Reserve Account over the
Required Reserve Account Amount and will pay such amount to the transferors.
If the Reserve Account has not terminated as described below, all amounts
remaining on deposit in the Reserve Account on any Distribution Date (after
giving effect to any deposits to, or withdrawals from, the Reserve Account to
be made on such Distribution Date) will be invested by the trustee at the
direction of the servicer in Eligible Investments that mature on or before the
following Distribution Date. The interest and other investment income (net of
losses and investment expenses) earned on such investments will be retained in
the Reserve Account (to the extent the amount on deposit therein is less than
the Required Reserve Account Amount) or deposited in the Collection Account
and treated as Yield Collections.
On or before each Distribution Date during the Controlled Accumulation
Period (on or prior to the Expected Final Payment Date) and on the first
Special Payment Date, a withdrawal will be made from the Reserve Account, and
the amount of such withdrawal will be deposited in the Collection Account and
treated as Yield Collections in an amount equal to the lesser of:
(a) the Available Reserve Account Amount for such Distribution Date or
Special Payment Date and
(b) the amount, if any, by which the Covered Amount exceeds the
investment earnings (net of losses and investment expenses), if any,
in the Principal Funding Account for the related Distribution Date
or Special Payment Date;
provided that the amount of such withdrawal will be reduced to the extent that
funds otherwise would be available to be deposited in the Reserve Account on
such Distribution Date or Special Payment Date. On each Distribution Date, the
amount available to be withdrawn from the Reserve Account will equal the
Available Reserve Account Amount.
The Reserve Account will be terminated following the earliest to occur of
(a) the termination of the trust pursuant to the Agreement,
(b) the date on which the Class A Invested Amount is paid in full and
(c) if the Controlled Accumulation Period has not begun, the occurrence
of a Pay Out Event with respect to Series 2001-1 or, if the
Controlled Accumulation Period has begun, the earlier of the first
Special Payment Date and the Expected Final Payment Date.
Upon the termination of the Reserve Account, all amounts on deposit therein
(after giving effect to any withdrawal from the Reserve Account on such date
as described above) will be distributed to the transferors. Any amounts
withdrawn from the Reserve Account and distributed to the transferors as
described above will not be available for distribution to the Class A
certificateholders.
S-19
Distributions from the Collection Account
On each Distribution Date, the trustee, acting pursuant to the servicer's
instructions, will apply the funds on deposit in the Collection Account in the
following priority:
(a) On each Distribution Date, an amount equal to the Floating Allocation
Percentage of Yield Collections deposited in the Collection Account for the
Due Period immediately preceding the related Distribution Date plus, with
respect to a Distribution Date occurring during the Controlled Accumulation
Period, Investment Earnings will be allocated in the following priority:
(1) an amount equal to Class A Monthly Interest for the related
Distribution Date, plus the amount of any Class A Monthly Interest
previously due but not paid to Class A certificateholders on a prior
Distribution Date, plus any additional interest at a rate per annum equal to
the Class A certificate rate plus 2% with respect to interest amounts that
were due but not paid on a prior Distribution Date, will be paid to the
Class A certificateholders;
(2) an amount equal to Class B Monthly Interest for the related
Distribution Date plus the amount of any Class B Monthly Interest previously
due but not paid to the Class B certificateholders on a prior Distribution
Date, plus any additional interest at a rate per annum equal to the Class B
certificate rate plus 2% with respect to interest amounts that were due but
not paid on a prior Distribution Date, will be paid to Class B
certificateholders;
(3) an amount equal to the Monthly Servicing Fee for the related
Distribution Date plus any Monthly Servicing Fee that was due but not paid
on a prior Distribution Date will be distributed to the servicer (unless
such amount has been previously netted against deposits to the Collection
Account);
(4) an amount equal to unreimbursed Class A Investor Charge-Offs, if any,
will be deemed to be Principal Collections and treated as Excess Principal
Collections during the Revolving Period and will be treated as part of Class
A Monthly Principal during the Controlled Accumulation Period or any Early
Amortization Period;
(5) an amount equal to the aggregate Investor Default Amount for the
related Distribution Date will be deemed to be Principal Collections and
treated as Excess Principal Collections during the Revolving Period and will
be treated as part of Class A Monthly Principal during the Controlled
Accumulation Period or any Early Amortization Period;
(6) an amount equal to the amount of interest which has accrued with
respect to the outstanding aggregate principal amount of the Class B
certificates at the Class B certificate rate but has not been paid to the
Class B certificateholders either on the related Distribution Date or on a
prior Distribution Date, plus any additional interest at a rate per annum
equal to the Class B certificate rate plus 2% with respect to such interest
amounts that were due but not paid to Class B certificateholders on any
previous Distribution Date, will be paid to the Class B certificateholders;
(7) an amount equal to unreimbursed Class B Investor Charge-Offs, if any,
will be deemed to be Principal Collections and treated as Excess Principal
Collections during the Revolving Period and will be treated as part of Class
A Monthly Principal during the Controlled Accumulation Period or any Early
Amortization Period;
(8) on each Distribution Date from and after the Reserve Account Funding
Date, but prior to the date on which the Reserve Account terminates as
described under "Series Provisions--Reserve Account" herein, an amount up to
the excess, if any, of the Required Reserve Account Amount over the
Available Reserve Account Amount shall be deposited to the Reserve Account;
and
(9) any Yield Collections allocated to the Certificateholders' Interest
remaining after giving effect to the above-described distributions and
allocations will be made available for allocation to other Excess Allocation
Series or paid to the transferors as described in "Description of the
Certificates--Sharing of Excess Yield Collections Among Excess Allocation
Series" in the accompanying prospectus.
(b) For each Distribution Date with respect to the Controlled Accumulation
Period or any Early Amortization Period, the remaining funds on deposit in the
Collection Account with respect to the related
S-20
Distribution Date including, in the case of clause (i) below, Excess Principal
Collections, if any, from other series allocable to the certificates will be
allocated in the following priority:
(1) an amount up to Class A Monthly Principal for the related Distribution
Date, plus Excess Principal Collections, if any, from other series allocable
to the certificates will be deposited in the Principal Funding Account;
(2) an amount up to the Class B Invested Amount for any Distribution Date
on and after the Class A certificates have been paid in full, plus Excess
Principal Collections, if any, from other series allocable to the
Certificates, will be distributed to the holders of the Class B
certificates; and
(3) an amount equal to the balance of any such remaining funds on deposit
in the Collection Account will be treated as Excess Principal Collections
and distributed to other series or to the transferors as provided in the
Agreement.
Distribution to Class A Certificateholders
In addition to the amounts deposited in the Collection Account and the
Principal Funding Account as described above, the following amounts shall be
deposited in the Collection Account or Principal Funding Account, as
applicable, for distribution to the Class A certificateholders:
(a) on each Distribution Date during the Controlled Accumulation Period,
any investment earnings (net of losses and investment expenses) with respect
to the Principal Funding Account will be withdrawn from such account and
deposited into the Collection Account for application as Class A Monthly
Interest, and
(b) the proceeds of any optional repurchase of the Class A certificates by
the transferors deemed to be Principal Collections will be withdrawn from
the Collection Account and deposited in the Principal Funding Account on the
Distribution Date on which such purchase occurs for application in
accordance with "--Principal Collections."
The servicer shall instruct the trustee or the Paying Agent to make the
following distributions:
(a) on each Distribution Date, on each Special Payment Date and on the
Expected Final Payment Date, all amounts on deposit in the Collection
Account (other than any investment earnings thereon) shall be distributed to
Class A certificateholders; and
(b) on each Special Payment Date and on the Expected Final Payment Date,
all amounts on deposit in the Principal Funding Account will be distributed
to Class A certificateholders up to a maximum amount on any such date equal
to the Class A Invested Amount on such date.
The Paying Agent shall have the revocable power to withdraw funds from the
Collection Account and the Principal Funding Account for the purpose of making
distributions to the Class A certificateholders.
On each Distribution Date during the Revolving Period, the servicer will pay
to the transferors any investment earnings (net of losses and investment
expenses) with respect to the Collection Account. On any Distribution Date
during any Early Amortization Period, such investment earnings (net of losses
and investment expenses) will be considered Yield Collections under the
Agreement.
Investor Charge-Offs
On any Distribution Date, if the Investor Default Amount for such
Distribution Date exceeds the amount of Yield Collections which are allocated
and available to fund such amount as described under clause (a)(v) of
"--Distributions from the Collection Account," then the Class B Invested
Amount shall be reduced by the aggregate amount of such excess, but not more
than the Investor Default Amount for such Distribution Date, called a Class B
Investor Charge-Off. On any subsequent Distribution Date, the Class B Invested
Amount may be increased (but not in excess of the outstanding principal
balance of the Class B certificates) by the amount of Yield Collections
allocated and available for that purpose as described under clause (a)(vii) of
"--Distributions from the Collection Account."
In the event that such reduction would cause the Class B Invested Amount to
be a negative number, the Class B Invested Amount will be reduced to zero, and
the Class A Invested Amount will be reduced by the
S-21
amount, called a Class A Investor Charge-Off, by which the Class B Invested
Amount would have been reduced below zero, but not by more than the Investor
Default Amount for such Distribution Date. Such Class A Investor Charge-Off
will have the effect of slowing or reducing the return of principal to the
Class A certificateholders. If the Class A Invested Amount has been reduced by
the amount of any Class A Investor Charge-Offs, it will thereafter be
increased on any Distribution Date (but not by an amount in excess of the
aggregate Class A Investor Charge-Offs) by the amount of Yield Collections
allocated and available for that purpose as described under clause (a)(iv) of
"--Distributions from the Collection Account."
Addition of Accounts
If, as of the end of any two consecutive Due Periods, the Transferor Amount
as a percentage of the Trust Principal Component (reduced, for the purpose of
this calculation, by the Privileged Assets Calculated Amount) is less than 15%
or if, as of the end of any Due Period, the Trust Principal Component (reduced
as aforesaid) is less than $870,800,000 plus any amounts established with
respect to other outstanding series, the transferors will be required to
designate the Receivables of Additional Accounts (to the extent available) and
to transfer such Receivables in such Additional Accounts to the trust.
Optional Repurchase
On any Distribution Date occurring on or after the date that the sum of the
Class A Invested Amount and Class B Invested Amount is reduced to $81,081,081
(10% of the initial outstanding aggregate principal amount of the Class A
certificates and the Class B certificates), the transferors will have the
option to repurchase the interest of the Class A certificateholders and the
Class B certificateholders. The repurchase price will be equal to the sum of
the Class A Invested Amount plus accrued and unpaid interest on the Class A
Certificates and the Class B Invested Amount plus accrued and unpaid interest
on the Class B Certificates through (i) if the day on which such repurchase
occurs is a Distribution Date, the day preceding such Distribution Date or
(ii) if the day on which such repurchase occurs is not a Distribution Date,
the day preceding the next Distribution Date.
Pay Out Events
The Pay Out Events with respect to Series 2001-1 include each of the
following:
(1) a failure on the part of any transferor or TRS (a) to make any payment
or deposit required under the Agreement, the Series 2001-1 Supplement or the
RFC Receivable Purchase Agreement, as applicable, within five business days
after the day such payment or deposit is required to be made or (b) to
observe or perform any other covenant or agreement of such transferor or the
servicer in the Agreement or, with respect to RFC, to the extent assigned to
the trust, in the RFC Receivable Purchase Agreement, which failure has a
material adverse effect on the certificateholders and which continues
unremedied for a period of 60 days after written notice;
(2) any representation or warranty made by any transferor in the Agreement
or the Series 2001-1 Supplement or any representation or warranty made by
TRS in the RFC Receivable Purchase Agreement or any information required to
be given by any transferor or the servicer to the trustee to identify the
Designated Accounts proves to have been incorrect in any material respect
when made or delivered and continues to be incorrect in any material respect
for a period of 60 days after written notice and as a result of which the
interests of the certificateholders are materially and adversely affected;
provided, however, that a Pay Out Event described in this clause (2) shall
not be deemed to occur if a transferor has accepted the transfer of the
related Receivable or all such Receivables, if applicable, during such
period (or such longer period as the trustee may specify not to exceed an
additional 60 days) in accordance with the provisions of the Agreement;
(3) certain events of bankruptcy or insolvency relating to the transferors
or TRS;
(4) there will have been three consecutive Distribution Dates on which the
Class B Invested Amount is less than the Class B Initial Invested Amount;
(5) the trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
S-22
(6) a failure by a transferor to convey Receivables in Additional Accounts
or participation interests to the trust within five Business Days after the
day on which it is required to convey such Receivables or participation
interests pursuant to the Agreement or the Series 2001-1 supplement;
(7) any Servicer Default occurs which would have a material adverse effect
on the certificateholders;
(8) on any Determination Date, the Class B Invested Amount is less than 2%
of the Class A Invested Amount; or
(9) on any Determination Date, the Transferor Amount as a percentage of
the Trust Principal Component as of the last day of the prior Due Period
(reduced, for the purpose of this calculation, by the Privileged Assets
Calculated Amount for such Due Period) is less than 3%.
In the case of any event described in clause (1), (2) or (7), a Pay Out
Event will be deemed to have occurred with respect to any series only if,
after any applicable grace period, if any, set forth in such clauses, either
the trustee or certificateholders of such series evidencing more than 50% of
the aggregate unpaid principal amount of such series, by written notice then
given to the transferors and the servicer (and to the trustee, if given by
such certificateholders) may declare that a Pay Out Event has occurred with
respect to Series 2001-1 as of the date of such notice. In the case of any
event described in clause (3), (5), (6) or (9), a Pay Out Event with respect
to all series and, in the case of any event described in clause (4) or (8), a
Pay Out Event only with respect to Series 2001-1, will occur immediately upon
the occurrence of such event, without any notice or other action on the part
of the trustee.
If, contrary to the opinion of tax counsel described under "Federal Income
Tax Consequences" in the accompanying prospectus, it is determined that the
Class A certificates do not constitute indebtedness for federal income tax
purposes, such determination will not constitute a Pay Out Event with respect
to Series 2001-1.
Servicing Compensation and Payment of Expenses
The share of the servicing fee, known as the Monthly Servicing Fee,
allocable to the Class A certificateholders and Class B certificateholders
with respect to any Distribution Date shall be equal to one-twelfth of the
product of (a) 2.0% and (b) the sum of the Class A Adjusted Invested Amount
and the Class B Invested Amount as of the last day of the second preceding Due
Period (or, in the case of the first Distribution Date, the product of (i) the
actual number of days from and including the series issuance date to and
including December 16, 2001, divided by 360, (ii) 2.0% and (iii) the initial
principal amount of the Class A certificates and the Class B certificates).
The remainder of the servicing fee will be paid directly by the holders of the
transferor certificates or the certificateholders of other series (as provided
in the related supplements). In no event will the trust, the trustee or the
holders of the Class A certificates or Class B certificates be liable for the
share of the servicing fee to be paid by the holders of the transferor
certificates or the certificateholders of any other series.
ERISA CONSIDERATIONS
Subject to the considerations described below and in the accompanying
prospectus, the Class A certificates may be purchased by, on behalf of, or
with "plan assets" of any employee benefit or other Plan that is subject to
the Employee Retirement Income Security Act of 1974, as amended, or Section
4975 of the Internal Revenue Code of 1986, as amended. Any Plan fiduciary that
proposes to cause a Plan to acquire any of the Class A certificates is
cautioned to consult with its counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership
of such Class A certificates. See "ERISA Considerations" in the accompanying
prospectus.
It is anticipated that the Class A certificates will meet the criteria for
treatment as "publicly-offered securities" as described in the accompanying
prospectus. No restrictions will be imposed on the transfer of the Class A
certificates. It is expected that the Class A certificates will be held by at
least 100 independent investors at the conclusion of the initial public
offering made hereby, although no assurance can be given, and no monitoring or
other measures will be taken to ensure that such condition is met. The Class A
certificates will be sold as part of an offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, and then
will be timely registered under the Exchange Act.
S-23
If the foregoing exception under the plan asset regulation were not
satisfied, transactions involving the trust and parties in interest with
respect to a Plan that purchases or holds Class A certificates might be
prohibited under Section 406 of ERISA and/or Section 4975 of the Code and
result in excise tax and other liabilities under ERISA and Section 4975 of the
Code unless an exemption were available. The five Department of Labor class
exemptions described in the accompanying prospectus may not provide relief for
all transactions involving the assets of the trust even if they would
otherwise apply to the purchase of Class A certificates by a Plan. See "ERISA
Considerations" in the accompanying prospectus.
Any Plan fiduciary considering whether to purchase any Class A certificates
on behalf of, or with "plan assets" of a Plan is cautioned to consult with its
counsel regarding the applicability of the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 of the Code to
such investment. Among other things, before purchasing any Class A
certificates, a Plan fiduciary should make its own determination as to the
availability of any prohibited transaction exemptions.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
among the transferors, TRS and the underwriters named below, the transferors
have agreed to cause the trust to sell to the underwriters, and the
underwriters have agreed to purchase, the principal amount of Class A
certificates as set forth opposite their names:
Principal
Amount of
Underwriters Class A
------------ Certificates
------------
Salomon Smith Barney Inc............................................................ $180,000,000
Banc One Capital Markets, Inc. ..................................................... 180,000,000
Barclays Capital, Inc............................................................... 180,000,000
Deutsche Banc Alex. Brown Inc. ..................................................... 180,000,000
Blaylock & Partners, L.P............................................................ 15,000,000
Utendahl Capital Partners, L.P...................................................... 15,000,000
------------
Total............................................................................... $750,000,000
============
The underwriting agreement provides that the obligation of the underwriters
to pay for and accept delivery of the Class A certificates is subject to the
approval of certain legal matters by their counsel and to certain other
conditions. All of the Class A certificates offered hereby will be issued if
any are issued. Offering expenses are estimated to be $450,000.
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 0.135% of the principal amount
of the Class A Certificates. The underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.080% 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 complied and
will comply with all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the Class A certificates
in, from or otherwise involving the United Kingdom; (b) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue or sale 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
1996 or is a person to whom such document may otherwise lawfully be issued or
passed on; (c) if it is an authorized person under Chapter III of part I of
the Financial Services Act 1986, it has only promoted and will only promote
(as that term is defined in Regulation 1.02(2) of the Financial Services
(Promotion of Unregulated Schemes) Regulations 1991) to any person in the
United Kingdom the Class A certificates described in this prospectus
supplement and the accompanying prospectus if that person is of a kind
described either in Section 76(2) of the Financial Services Act 1986 or in
Regulation 1.04 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991; and (d) it is a person of a kind
S-24
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exceptions) Order 1996.
The underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Class A certificates in accordance with Regulation M under the Exchange
Act. Over-allotment transactions involve syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the Class A certificates so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Class A certificates in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the Class A certificates originally
sold by such syndicate member are purchased in a syndicate covering
transaction. Such over-allotment transactions, stabilizing transactions,
syndicate covering transactions and penalty bids may cause the prices of the
Class A certificates to be higher than they would be in the absence of such
transactions. Neither the transferors nor any of the underwriters represent
that the underwriters will engage in any such transactions or that such
transactions, once commenced, will not be discontinued without notice at any
time.
The transferors will indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or
contribute to payments the underwriters may be required to make in respect
thereof.
S-25
GLOSSARY OF DEFINED TERMS
"Available Reserve Account Amount" means, on each Distribution Date and the
first Special Payment Date, the amount available to be withdrawn from the
Reserve Account equal to the lesser of the amount on deposit in the Reserve
Account (before giving effect to any deposit to be made to the Reserve Account
on such Distribution Date or such Special Payment Date) and the Required
Reserve Account Amount for such Distribution Date or such Special Payment
Date.
"Business Day" means, for purposes of this prospectus supplement and the
accompanying prospectus (unless otherwise indicated), any day other than (a) a
Saturday or Sunday or (b) any other day on which banking institutions in New
York, New York or any other state in which the principal executive offices of
Centurion or the trustee are located or are authorized or obligated by law or
executive order to be closed.
"Certificateholders' Interest" means payments received on the trust's assets
and allocated to the Class A certificateholders and the Class B
certificateholders.
"Class A Adjusted Invested Amount" means, for any date of determination, an
amount equal to the Class A Invested Amount minus the aggregate principal
amount on deposit in the Principal Funding Account.
"Class A Initial Invested Amount" means $750,000,000.
"Class A Invested Amount" means, for any date of determination, an amount
equal to:
(i) the Class A Initial Invested Amount, minus
(ii) the amount of principal payments made to the Class A
certificateholders on or prior to such date, minus
(iii) the aggregate amount of Class A Investor Charge-Offs for the current
and all Distribution Dates prior to such date, plus
(iv) the aggregate amount of any reimbursements of Class A Investor
Charge-Offs for all Distribution Dates prior to such date;
provided, however, that the Class A Invested Amount may not be reduced below
zero.
"Class A Investor Charge-Off" has the meaning described in "Series
Provisions--Investor Charge-Offs" in this prospectus supplement.
"Class A Monthly Interest" means, for any Distribution Date, an amount equal
to the product of:
(i) a fraction, the numerator of which is the actual number of days in
the period from and including the preceding Distribution Date to but
excluding such Distribution Date and the denominator of which is
360,
(ii) the Class A certificate rate in effect for that period, and
(iii) the outstanding principal amount of the Class A certificates as of
the preceding Record Date;
provided, however, for the first Distribution Date, Class A Monthly Interest
will be equal to the interest accrued on the initial principal amount of the
Class A certificates at the Class A certificate rate for the period from and
including the series issuance date to but excluding the first Distribution
Date.
"Class A Monthly Principal" means, for any Distribution Date with respect to
the Controlled Accumulation Period, an Early Amortization Period or any
Special Payment Date, an amount equal to the sum of:
(i) an amount equal to the Fixed Allocation Percentage of all Principal
Collections received during the Due Period immediately preceding
such Distribution Date or Special Payment Date (or, in the case of
the Distribution Date immediately following the occurrence of a Pay
Out Event, received during the period from the day such Pay Out
Event occurred to the end of such Due Period),
(ii) the amount, if any, equal to the product of:
S-26
(a) a fraction, the numerator of which is the Class A Adjusted
Invested Amount plus the Class B Invested Amount and the
denominator of which is the sum of the invested amounts of all
series then accumulating or amortizing principal (less any
amounts on deposit in any principal funding accounts), and
(b) Undistributed Principal Collections on deposit in the
Collection Account on such Distribution Date or Special Payment
Date, and
(iii) the Investor Default Amount for such Distribution Date or Special
Payment Date and any reimbursements of unreimbursed Class A Investor
Charge-Offs and Class B Investor Charge-Offs;
provided, however, that for each Distribution Date with respect to the
Controlled Accumulation Period (unless and until a Pay Out Event shall have
occurred), Class A Monthly Principal may not exceed either the Controlled
Deposit Amount for such Distribution Date or the Class A Invested Amount.
"Class B Initial Invested Amount" means $60,810,810.
"Class B Invested Amount" means, for any date of determination, an amount
equal to:
(i) the Class B Initial Invested Amount, minus
(ii) the amount of principal payments made to the Class B
certificateholders on or prior to such date, minus
(iii) the aggregate amount of Class B Investor Charge-Offs for the current
Distribution Date and all Distribution Dates prior to such date, plus
(iv) the aggregate amount of any reimbursements of Class B Investor
Charge-Offs for all Distribution Dates prior to such date;
provided, however, that the Class B Invested Amount may not be reduced below
zero.
"Class B Investor Charge-Off" has the meaning described in "Series
Provisions--Investor Charge-Offs" in this prospectus supplement.
"Class B Monthly Interest" means, for any Distribution Date, an amount equal
to the product of:
(i) a fraction, the numerator of which is the actual number of days in
the period from and including the preceding Distribution Date to but
excluding such Distribution Date and the denominator of which is 360,
(ii) the Class B certificate rate in effect for that period, and
(iii) the outstanding principal amount of the Class B certificates as of
the preceding Record Date;
provided, however, for the first Distribution Date, Class B Monthly Interest
will be equal to the interest accrued on the initial principal amount of the
Class B certificates at the Class B certificate rate for the period from and
including the series issuance date to but excluding the first Distribution
Date.
"Controlled Accumulation Amount" means, for any Distribution Date with
respect to the Controlled Accumulation Period, $375,000,000; provided,
however, that, if the commencement of the Controlled Accumulation Period is
delayed above under "Series Provisions--Postponement of the Controlled
Accumulation Period," the Controlled Accumulation Amount will be an amount
sufficient so that the sum of the Controlled Accumulation Amounts for each
Distribution Date will equal the Class A Invested Amount as of the Expected
Final Payment Date.
"Controlled Accumulation Period" means the period of time described under
"Series Provisions--Principal Payments--Controlled Accumulation Period" in
this prospectus supplement.
"Controlled Deposit Amount" means, for any Distribution Date with respect to
the Controlled Accumulation Period, an amount equal to the sum of the
Controlled Accumulation Amount for such Distribution Date and any existing
Deficit Controlled Accumulation Amount for the immediately preceding
Distribution Date.
S-27
"Covered Amount" means, for any Distribution Date with respect to the
Controlled Accumulation Period or the first Special Payment Date, if such
Special Payment Date occurs before the Class A Invested Amount is paid in
full, an amount equal to the product of:
(i) a fraction, the numerator of which is the actual number of days in
the period from and including the preceding Distribution Date to but
excluding such Distribution Date and the denominator of which is 360,
(ii) the Class A certificate rate in effect for that period, and
(iii) all amounts on deposit in the Principal Funding Account as of the
preceding Distribution Date.
"Deficit Controlled Accumulation Amount" means (a) on the first Distribution
Date with respect to the Controlled Accumulation Period, the excess, if any,
of the Controlled Accumulation Amount for such Distribution Date over the
amount deposited in the Principal Funding Account on such Distribution Date
and (b) on each subsequent Distribution Date with respect to the Controlled
Accumulation Period, the excess, if any, of the Controlled Accumulation Amount
for such subsequent Distribution Date and any then existing Deficit Controlled
Accumulation Amount over the amount deposited in the Principal Funding Account
on such subsequent Distribution Date.
"Determination Date" means the earlier of the third Business Day and the
fifth calendar day (or, if the fifth calendar day is not a Business Day, then
the immediately preceding Business Day) preceding each Distribution Date.
"Distribution Date" means December 17, 2001 and the 15th day of each month
thereafter (or, if any such day is not a Business Day, the next succeeding
Business Day).
"Early Amortization Period" means the period beginning on the day on which a
Pay Out Event occurs or is deemed to have occurred to the earlier of the date
on which the Class A Invested Amount and the Class B Invested Amount have been
paid in full or the Final Series 2001-1 Termination Date.
"Excess Principal Collections" means, for any Due Period, the amount of
Principal Collections allocated to the Certificateholders' Interest remaining
after covering required deposits to the Principal Funding Account and payments
to the certificateholders and any similar amount remaining for any other
series.
"Expected Final Payment Date" means the October 2004 Distribution Date.
"Fixed Allocation Percentage" means, for any date of determination with
respect to any Distribution Date during the Controlled Accumulation Period or
any Early Amortization Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction:
o the numerator of which is the Invested Amount on the last day of the
Revolving Period, and
o the denominator of which is the greater of:
(i) the Trust Principal Component on the last day of the
immediately preceding Due Period, and
(ii) the sum of the numerators used to calculate the Invested
Percentage with respect to Principal Collections for all
outstanding series as of the current Distribution Date.
"Floating Allocation Percentage" means, for any date of determination with
respect to any Distribution Date, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction:
o the numerator of which is the Invested Amount on the last day of the
immediately preceding Due Period (or, in the case of the initial Due
Period, the series issuance date), and
o the denominator of which is the Trust Principal Component on the last day
of such immediately preceding Due Period (or, in the case of the initial
Due Period, the Series 2001-1 Cut-Off Date).
"Invested Amount" means, for any date of determination, an amount equal to
the sum of the Class A Invested Amount and the Class B Invested Amount.
S-28
"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. If such rate does not appear
on Telerate Page 3750, the rate for that LIBOR Determination Date will be
determined on the basis of the rates at which deposits in United States
dollars are offered by four reference banks in the London interbank market for
a one-month period (commencing on the first day of the relevant Due Period).
The trustee will request the principal London office of each of the reference
banks to provide a quotation of its rate. If at least two quotations are
provided, the rate for that LIBOR Determination Date will be the arithmetic
mean of such quotations. If fewer than two quotations are provided, the rate
for that LIBOR Determination Date will the arithmetic mean of the rates quoted
by major banks in New York City, selected by the servicer, at approximately
11:00 a.m., New York City time, on that day for loans in United States dollars
to leading European banks for a one-month period (commencing on the first day
of the relevant Due Period). If the banks selected by the servicer are not
quoting rates as provided in the immediately preceding sentence, LIBOR for
such Due Period will be LIBOR for the immediately preceding Due Period.
"LIBOR Determination Date" means, for each of the Class A certificate rate
and the Class B certificate rate, (i) for the initial Due Period, the second
London business day prior to the series issuance date and (ii) for each Due
Period following the initial Due Period, the second London business day prior
to the first day of such Due Period. For purposes of the LIBOR Determination
Date, a London business day is any day on which dealings in deposits in United
States dollars are transacted in the London interbank market.
"Monthly Servicing Fee" has the meaning described in "Series Provisions--
Servicing Compensation and Payment of Expenses" in this prospectus supplement.
"Pay Out Events" with respect to Series 2001-1 are the events described in
"Series Provisions--Pay Out Events" in this prospectus supplement and
"Description of the Certificates--Pay Out Events" in the accompanying
prospectus.
"Principal Funding Account" means the account established as described under
"Series Provisions--Principal Funding Account" in this prospectus supplement.
"Principal Shortfall" for Series 2001-1 means any scheduled or permitted
principal distributions to certificateholders and deposits to the principal
funding account for any series which have not been covered out of Principal
Collections allocable to such other series and certain other amounts for such
series.
"Required Reserve Account Amount" means, for any Distribution Date on or
after the Reserve Account must be funded, an amount equal to:
(i) 0.50% of the Class A Invested Amount as of the preceding Distribution
Date (after giving effect to all changes therein on such date), or
(ii) such other amount designated by the transferors, provided that the
transferors have received written notice from each rating agency that
such designation will not cause a downgrade or withdrawal of such
rating agency's then current rating of any outstanding series.
"Reserve Account" means the account established as described under "Series
Provisions--Reserve Account" in this prospectus supplement.
"Revolving Period" means the period of time described under "Series
Provisions--Principal Payments--Revolving Period" in this prospectus
supplement.
"Series 2001-1 Cut-Off Date" means October 27, 2001.
"Series 2001-1 Termination Date" means the September 2005 Distribution Date.
"Series Undistributed Principal Collections" means an amount equal to the
product of:
o a fraction, the numerator of which is equal to the sum of the Class A
Adjusted Invested Amount and the Class B Invested Amount and the
denominator of which is equal to the sum of the invested amounts of all
series then accumulating or amortizing principal (less any amounts on
deposit in any principal funding accounts), and
S-29
o Undistributed Principal Collections on deposit in the Collection
Account on such Distribution Date.
"Special Payment Date" means each Distribution Date with respect to an Early
Amortization Period and each Distribution Date following the Expected Final
Payment Date.
"Telerate Page 3750" means the display page currently so designated on the
Bridge Telerate Market Report (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
S-30
ANNEX I
OTHER SERIES ISSUED AND OUTSTANDING
The tables below set forth the principal characteristics of the American
Express Master Trust Class A and Class B Accounts Receivable Trust
Certificates, Series 1994-3, the American Express Master Trust Class A and
Class B Accounts Receivable Trust Certificates, Series 1996-1, and the
American Express Master Trust Class A and Class B Accounts Receivable Trust
Certificates, Series 1998-1, which are the only other series issued by the
Trust which are currently outstanding. For more specific information with
respect to any Series, any prospective investor should contact the servicer at
(201) 209-5692. The servicer will provide, without charge, to any prospective
purchaser of the Series 2001-1 Class A Certificates, a copy of the disclosure
documents for any previous publicly-issued Series currently outstanding.
Series 1994-3
Class A Invested Amount . . . . . . . . . . . . . . . . . . . . . .$300,000,000
Class B Invested Amount . . . . . . . . . . . . . . . . . . . . . . $17,460,317
Class A Certificate Rate. . . . . . . . . . . . . . . . . . . . .7.85% per year
Class B Certificate Rate. . . . . . . . . . . . . . . . . . . . .7.95% per year
Class A Expected Final Payment Date . . . . . . . . . . . . .September 15, 2004
Controlled Accumulation Amount. . . . . . . . . . . . . . . . . . $150,000,000*
Approximate Commencement of Controlled Accumulation Period. . . . July 1, 2004*
Series Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . 2.0% per year
Series Termination Date . . . . . . . . . . . . . . . . . . . . August 15, 2005
Series Issuance Date. . . . . . . . . . . . . . . . . . . . .September 23, 1994
Series Minimum Trust Principal Component. . . . . . . . . . . . . .$341,000,000
Series 1996-1
Class A Invested Amount . . . . . . . . . . . . . . . . . . . . . .$950,000,000
Class B Invested Amount . . . . . . . . . . . . . . . . . . . . . . $77,027,027
Class A Certificate Rate. . . . . . . . . . One-Month LIBOR plus 0.15% per year
Class B Certificate Rate. . . . . . . . . . . . . . . . . . . . .7.30% per year
Class A Expected Final Payment Date . . . . . . . . . . . . .September 15, 2003
Controlled Accumulation Amount . . . . . . . . . . . . . . . . . $475,000,000*
Approximate Commencement of Controlled Accumulation Period. . . . July 1, 2003*
Series Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . 2.0% per year
Series Termination Date . . . . . . . . . . . . . . . . . . . . August 16, 2004
Series Issuance Date. . . . . . . . . . . . . . . . . . . . .September 18, 1996
Series Minimum Trust Principal Component. . . . . . . . . . . . .$1,104,500,000
Series 1998-1
Class A Invested Amount . . . . . . . . . . . . . . . . . . . . .$1,000,000,000
Class B Invested Amount . . . . . . . . . . . . . . . . . . . . . . $58,201,059
Class A Certificate Rate. . . . . . . . . . . . . . . . . . . . .5.90% per year
Class B Certificate Rate. . . . . . . . . . . . . . . . . . . . .6.05% per year
Class A Expected Final Payment Date . . . . . . . . . . . . . . . .May 15, 2003
Controlled Accumulation Amount . . . . . . . . . . . . . . . . . $500,000,000*
Approximate Commencement of Controlled Accumulation Period. . . .March 1, 2003*
Series Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . 2.0% per year
Series Termination Date . . . . . . . . . . . . . . . . . . . . .April 15, 2004
Series Issuance Date. . . . . . . . . . . . . . . . . . . . . . . .May 27, 1998
Series Minimum Trust Principal Component. . . . . . . . . . . . .$1,139,000,000
---------------
* Subject to adjustment
S-31
(This page intentionally left blank)
[AMERICAN EXPRESS LOGO]
American Express Master Trust
Accounts Receivable Trust Certificates
American Express Receivables Financing Corporation
and
American Express Centurion Bank,
as Transferors
American Express Travel Related Services Company, Inc.
as Servicer
The Accounts Receivable Trust 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 of each Series will evidence an
undivided interest in the American Express Master Trust (the "Trust"), in
accordance with the Amended and Restated Master Pooling and Servicing
Agreement among American Express Receivables Financing Corporation ("RFC") and
American Express Centurion Bank ("Centurion Bank"), as transferors (each, a
"Transferor"), American Express Travel Related Services Company, Inc. ("TRS"),
as servicer (in such capacity, the "Servicer"), and The Bank of New York, as
trustee (in such capacity, the "Trustee"). The assets of the Trust include,
receivables (the "Receivables") generated from time to time in the pay-in-full
portion of certain designated American Express(R) Card, American Express(R)
Gold Card and Platinum Card(R) accounts, or other card accounts (the
"Designated Accounts"), all monies due or to become due in respect of the
Receivables (including, without limitation, amounts owing for the payment of
merchandise and services and, unless otherwise specified in the related
Prospectus Supplement, annual membership fees and certain other administrative
fees and charges, and recoveries on charged-off Receivables),
(cover sheet continued on next page)
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER CONSIDERATIONS,
THE INFORMATION SET FORTH IN THE SECTIONS ENTITLED "RISK
FACTORS" COMMENCING ON PAGE 15 HEREIN AND IN
THE RELATED PROSPECTUS SUPPLEMENT.
THE CERTIFICATES WILL REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND
WILL NOT REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF AND WILL NOT
BE GUARANTEED BY RFC, CENTURION BANK, TRS, AMERICAN EXPRESS COMPANY OR ANY
AFFILIATE THEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Certificates may be sold 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 Transferors 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 Transferors associated with the issuance and
distribution of such Certificates. See "Underwriting."
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 November 2, 2001.
(continued from previous page)
any Receivables in accounts added to the Trust from time to time, moneys on
deposit in certain accounts of the Trust and all of the right, title and
interest of the Transferors, in the related RFC Receivable Purchase Agreement.
See "Description of the Certificates and the Agreement--General." The
Transferors will initially own the remaining undivided interest in the Trust.
Unless otherwise specified in the related Prospectus Supplement, TRS will
service the related Receivables.
The American Express(R) Card, American Express(R) Gold Card and Platinum
Card(R) are charge cards, not credit cards that provide for a revolving line
of credit. Therefore, except in the limited circumstances related to Recovery
Arrangements and described under "Domestic Consumer Charge Card Business--
Collection Efforts," the Receivables that originate in the Designated Accounts
are payable in full each month, and balances of the Designated Accounts are
not subject to a monthly finance charge. Therefore, unless otherwise specified
in the related Prospectus Supplement, a portion of the collections on the
Receivables in the Designated Accounts received in any Due Period equal to the
product of the aggregate amount of such collections and the Yield Factor will
be treated as Yield Collections and will be used, among other things, to pay
interest on the Certificates. The remainder of such collections will be
treated as Principal Collections and will be used to pay principal on the
Certificates. The Yield Factor is equal to 3.0% under the Agreement. The
Transferors have the ability, with certain restrictions, to change the Yield
Factor. See "Summary--Yield Factor; Collections."
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 another type of Certificates, as specified in the related
Prospectus Supplement. Each Certificate will represent an undivided interest
in the Trust and the interest of the Certificateholders of each Class or
Series will include the right to receive a varying percentage of each month's
collections with respect to the Receivables at the times, in the manner and to
the extent described herein and, with respect to any Series offered hereby, in
the related Prospectus Supplement. Interest and principal payments with
respect to each Series offered hereby will be made as specified in the related
Prospectus Supplement. One or more Classes of a Series offered hereby may be
entitled to the benefits of a letter of credit, a maturity guaranty facility,
a cash collateral account, a cash collateral guaranty, an interest rate cap, a
tax protection agreement, an interest rate swap, a guaranteed rate agreement,
an insurance policy, a spread account, a reserve account, the use of cross
support features, a subordinated interest in the Receivables or certain cash
flows in respect of the Receivables or other form of enhancement as specified
in the Prospectus Supplement relating to such Series. In addition, any Series
offered hereby may include one or more Classes which are subordinated in right
and priority to payment of principal of, and/or interest on, one or more other
Classes of such Series or another Series, in each case to the extent described
in the related Prospectus Supplement. Each Series of Certificates or Class
thereof 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.
2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT..................................................... 3
REPORTS TO CERTIFICATEHOLDERS............................................. 3
AVAILABLE INFORMATION..................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .......................... 3
PROSPECTUS SUMMARY........................................................ 5
RISK FACTORS.............................................................. 15
DOMESTIC CONSUMER CHARGE CARD BUSINESS ................................... 25
General ................................................................. 25
Underwriting and Authorization Procedures................................ 25
Billing and Fees ........................................................ 25
Collection Efforts ...................................................... 26
Distinction Between Accounts and Revolving Credit Plan Products.......... 26
THE DESIGNATED ACCOUNTS................................................... 27
General ................................................................. 27
THE TRANSFERORS AND RELATED PARTIES ...................................... 28
RFC ..................................................................... 28
Centurion Bank .......................................................... 28
TRS and CREDCO .......................................................... 28
THE TRUST................................................................. 28
MATURITY AND PRINCIPAL PAYMENT CONSIDERATIONS ............................ 29
DESCRIPTION OF THE CERTIFICATES........................................... 29
General ................................................................. 29
Book-Entry Registration ................................................. 30
Definitive Certificates ................................................. 33
Interest Payments ....................................................... 33
Principal Payments ...................................................... 34
Conveyance of Receivables ............................................... 34
Exchanges ............................................................... 35
Covenants, Representations and Warranties................................ 36
Addition of Accounts .................................................... 38
Removal of Designated Accounts .......................................... 39
Collection Account ...................................................... 39
Other Trust Accounts .................................................... 40
Allocation Percentages .................................................. 40
Allocation of Collections; Deposits in Collection Account................ 40
Principal Collections For All Series .................................... 42
Application of Collections .............................................. 42
Distributions From The Collection Account................................ 42
Sharing of Excess Yield Collections Among Excess Allocation Series....... 42
Special Funding Account ................................................. 43
Defaulted Receivables; Recoveries; Adjustments........................... 43
Investor Charge-Offs .................................................... 44
Final Payment of Principal; Termination of Trust......................... 44
Pay Out Events .......................................................... 45
Indemnification ......................................................... 46
Collection and Other Servicing Procedures ............................... 46
Servicer Covenants ...................................................... 47
Servicing Compensation and Payment of Expenses........................... 47
Resignation and Certain Other Matters Regarding the Servicer............. 48
Servicer Default ........................................................ 48
Reports to Certificateholders ........................................... 49
Evidence As To Compliance ............................................... 50
Amendments .............................................................. 50
List of Certificateholders .............................................. 51
The Trustee ............................................................. 51
ENHANCEMENT............................................................... 52
General ................................................................. 52
Subordination ........................................................... 52
Letter of Credit ........................................................ 53
Cash Collateral Guaranty or Account ..................................... 53
Collateral Interest ..................................................... 53
Surety Bond or Insurance Policy ......................................... 53
Spread Account .......................................................... 54
Reserve Account ......................................................... 54
DESCRIPTION OF THE RFC RECEIVABLES PURCHASE AGREEEMENT ................... 54
Sale of Receivables ..................................................... 54
Representations and Warranties .......................................... 55
Certain Covenants ....................................................... 55
Termination ............................................................. 56
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES ................................. 56
Transfer of Receivables ................................................. 56
Certain Matters Relating to Bankruptcy .................................. 56
Consumer Protection Laws ................................................ 57
FEDERAL INCOME TAX CONSEQUENCES .......................................... 58
General ................................................................. 58
Treatment of the Certificates as Debt ................................... 58
Treatment of the Trust .................................................. 59
Taxation of Interest Income of U.S. Certificate Owners................... 60
Sale or Exchange of Certificates ........................................ 61
Foreign Certificate Owners .............................................. 61
Backup Withholding and Information Reporting............................. 62
Sate and Local Taxation ................................................. 62
ERISA CONSIDERATIONS...................................................... 62
LEGAL MATTERS............................................................. 64
PLAN OF DISTRIBUTION...................................................... 64
INDEX OF DEFINED TERMS.................................................... 65
ANNEX I: GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES ... A-1
i
(This page intentionally left blank)
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series to be offered thereby and
hereby will, among other things, set forth with respect to such Series: (a)
the initial aggregate principal amount of each Class of such Series; (b) the
certificate interest rate (or method for determining it) of each Class of such
Series; (c) certain information concerning the Receivables allocated to such
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 such Series or any other Series; (f) the
identity of each Class of floating rate Certificates and fixed rate
Certificates included in such 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 such Series; and (j)
the plan of distribution of such Series.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly unaudited
reports, containing information concerning the Trust and prepared by the
Servicer, will be sent on behalf of the Trust to Cede & Co. ("Cede"), as
registered holder of the related Certificates, pursuant to the Agreement. See
"Description of the Certificates and the Agreement--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. Copies of such reports may be obtained by owners
of beneficial interests in the Certificates ("Certificate Owners") upon written
request to the Trustee at The Bank of New York, 5 Penn Plaza, 16th Floor, New
York, New York 10001-1803, Attention: Corporate Trust ABS Unit. The Servicer
will file with the Securities and Exchange Commission (the "Commission") such
reports with respect to the Trust as are required under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of
the Commission thereunder.
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 and amendments thereof and exhibits thereto
and any reports and other documents incorporated herein by reference as
described below under "Incorporation of Certain Documents by Reference," which
are available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of the Registration Statement and amendments thereof and
exhibits thereto may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Servicer will file with the Commission such periodic reports, if
any, with respect to the Trust as are required under the Exchange Act, and the
rules and regulations of the Commission thereunder. In addition, the
Commission maintains a public access site on the Internet through the World
Wide Web at which site reports, proxy and information statements and other
information regarding registrants, including all electronic filings, may be
viewed. The Internet address of the Commission's World Wide Web site is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of the
Trust, pursuant to section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates offered hereby shall be deemed to be incorporated
by reference into this Prospectus and to be part hereof. Any statement
contained herein or in a document deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in any other subsequently
filed document which also is deemed to be
3
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a party 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). Written requests
for such copies should be directed to American Express Travel Related Services
Company, Inc., 40 Wall Street, Mail Stop 10-19-06, New York, New York 10005,
Attention: Secretary. Telephone requests for such copies should be directed to
(201) 209-5692.
4
PROSPECTUS SUMMARY
The following summary 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 which are used
in this summary are defined elsewhere in this Prospectus and in the
accompanying Prospectus Supplement. See "Index of Defined Terms" in this
Prospectus and "Glossary of Defined Terms" in the accompanying Prospectus
Supplement. Unless the context otherwise requires, capitalized terms used in
this Prospectus and in the accompanying Prospectus Supplement refer only to
the particular Series being offered by such Prospectus Supplement.
TYPE OF SECURITY
Accounts Receivable Trust Certificates (the "Certificates").
THE TRUST
American Express Master Trust (the "Trust"), a trust created under the Amended
and Restated Master Pooling and Servicing Agreement, dated as of May 1, 1998,
as the same may be amended, supplemented or otherwise modified from time to
time (together with any assignment of Receivables in Additional Accounts
entered into pursuant thereto, the "Agreement") among the Servicer, the
Transferors and the Trustee. The Trust was created as a master trust under
which one or more Series will be issued pursuant to a series supplement to the
Agreement (each, a "Series Supplement"). Any Series issued by the Trust may or
may not be a Series offered pursuant to this Prospectus. The Certificates will
represent undivided interests in the Trust. Each Prospectus Supplement will
identify the Trust and all Series previously issued by such Trust.
THE TRANSFERORS
American Express Receivables Financing Corporation, a Delaware corporation
("RFC"), and American Express Centurion Bank, a Utah-chartered industrial loan
company ("Centurion Bank"), are the transferors of the Receivables. RFC is a
wholly owned, limited-purpose subsidiary of American Express Travel Related
Services Company, Inc. ("TRS"), a New York corporation that, in turn, is a
wholly owned subsidiary of American Express Company. Centurion Bank is also a
wholly owned subsidiary of TRS.
The Receivables transferred to the Trust by RFC are purchased by it from TRS,
the owner of the Designated Accounts in which such Receivables arise. The
Receivables transferred to the Trust by Centurion Bank will arise in
Designated Accounts that are owned by Centurion Bank.
TRUSTEE
The Bank of New York, unless otherwise specified in the related Prospectus
Supplement (the "Trustee").
TRUST ASSETS
The assets of the Trust include receivables consisting of amounts charged by
cardmembers for merchandise and services, and, unless otherwise specified in
the related Prospectus Supplement, all annual membership fees and certain
other administrative fees billed to Cardmembers (the "Receivables") arising
from time to time primarily in the pay-in-full portion of certain designated
American Express(R) Card, American Express(R) Gold Card and Platinum Card(R)*
accounts owned by TRS or Centurion Bank or, if specified in a related
Prospectus Supplement, in certain other designated card accounts described in
such Supplement (the "Designated Accounts"), funds collected or to be
collected from Cardmembers in respect of the Receivables (including recoveries
on charged-off Receivables ("Recoveries")), monies on deposit in certain
accounts of the Trust, all of the Transferors' respective right, title and
interest in the related RFC Receivable Purchase Agreement, payments made in
respect of any Enhancement issued with respect to any particular Series or
Class, or other assets, as described in the related Prospectus Supplement. See
"Domestic Consumer Charge Card Business." The term "Enhancement" means, with
respect to any Series or Class thereof, any letter of credit, maturity
guaranty facility, cash collateral account, cash collateral guaranty,
collateral interest, tax protection agreement, interest rate swap, interest
rate cap, surety bond, guaranteed rate agreement, insurance policy, spread
account, reserve account,
-----------
* American Express and Platinum Card are registered trademarks of American
Express Company.
5
subordinated interest in the Receivables or certain cash flows in respect of
the Receivables or other contract or agreement for the benefit of
Certificateholders of such Series or Class. 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.
TRS has sold to RFC, and RFC has conveyed to the Trust, all of TRS' right,
title and interest in and to the Receivables existing and arising in the
Designated Accounts owned by TRS from time to time until the termination of
the Trust and, when added, all of TRS' right, title and interest in and to the
Receivables arising in the Additional Accounts owned by TRS. Centurion Bank
will convey to the Trust all of Centurion Bank's right, title and interest in
and to the Receivables existing and arising in the Designated Accounts owned
by Centurion Bank from time to time until the termination of the Trust and,
when added, all of Centurion Bank's right, title and interest in and to the
Receivables arising in the Additional Accounts owned by Centurion Bank. See
"Description of the RFC Receivable Purchase Agreement."
THE DESIGNATED ACCOUNTS
The Designated Accounts met and will meet, as applicable, the criteria for
eligibility provided in the Agreement applied as of the date specified in the
Agreement (the "Selection Date"). Unless otherwise specified in the related
Prospectus Supplement, the Designated Accounts include and will include all
related accounts that are originated as a result of (a) the Card with respect
to a Designated Account being lost or stolen or (b) the conversion of a
Designated Account into another type of Eligible Account, in each case which
satisfies certain conditions set forth in the Agreement.
In addition, the Agreement provides that the Transferors have the right
(subject to certain limitations and conditions), and in some circumstances
will be obligated, to designate additional Eligible Accounts to be included as
Designated Accounts (the "Additional Accounts") and to convey to the Trust all
of the Receivables in such Additional Accounts, whether such Receivables are
then existing or thereafter created.
Further, the Agreement provides that the Transferors have the right (subject
to certain limitations and conditions) to accept removal of certain Designated
Accounts designated by the Transferors from the Trust (the "Removed Accounts")
and accept the conveyance of all of the Receivables in the Removed Accounts,
whether such Receivables are then existing or thereafter created.
THE RECEIVABLES
The Receivables consist of amounts charged on the pay-in-full portion of the
Designated Accounts for merchandise and services and, unless otherwise
specified in the related Prospectus Supplement, all annual membership fees and
certain other administrative fees billed to the Designated Accounts on and
after the date (the "Cut Off Date") specified in the related Prospectus
Supplement. The Designated Accounts have been and will be selected based on
criteria provided in the Agreement and described in the related Prospectus
Supplement as applied on the Selection Date specified in the related
Prospectus Supplement and, with respect to Additional Accounts, if any, on
such subsequent dates specified in the Agreement and described in the related
Prospectus Supplement.
All new Receivables arising in the Designated Accounts (including in any
Additional Accounts) during the term of the Trust will be the property of the
Trust. Accordingly, the amount of Receivables in the Trust will fluctuate as
new Receivables are generated and as existing Receivables are collected,
charged off as uncollectible or otherwise adjusted.
YIELD FACTOR; COLLECTIONS
Except in the limited circumstances related to Recovery Arrangements and
described under "Domestic Consumer Charge Card Business--Collection Efforts,"
the Receivables that originate in the Designated Accounts are not subject to a
monthly finance charge, and, therefore, it will be necessary to treat a
portion of the collections on the Receivables in the Designated Accounts
received in any Due Period (as such term is defined below) as "yield" to the
Trust. This yield will equal the product of the aggregate amount of such
collections (including any payments made by the Transferors in respect of any
Recovery Arrangements, any Ineligible Receivables or any Adjustments and
payments made by the Servicer in connection with the breach by it of certain
covenants) and the Yield Factor. Such collections will be treated as Yield
6
Collections. The remainder of such collections will be treated as Principal
Collections (Principal Collections and Yield Collections are collectively
sometimes referred to herein as "Collections"). Unless otherwise specified in
the related Prospectus Supplement, Recoveries will not be considered
Collections but will instead be utilized as an offset to Defaulted
Receivables. The "Yield Factor" of the Trust is currently equal to 3.0% under
the Agreement, and, subject to certain limitations, may be changed from time
to time thereafter by the Transferors. See "Risk Factors--Ability to Change
Yield Factor."
The "Due Period" means, unless otherwise provided in a Prospectus Supplement,
with respect to each Distribution Date, (i) prior to and including the May
1998 Distribution Date, the period from and including the first day of the
immediately preceding calendar month and ending at the close of business on
the last day of such calendar month, (ii) for the June 1998 Distribution Date,
the period from and including May 1, 1998 to and including May 27, 1998, and
(iii) commencing with the July 1998 Distribution Date, the period (a) from and
including the day following the last day of the eighth billing cycle
applicable to the Accounts ending during the second preceding calendar month
(b) to and including the last day of the eighth billing cycle applicable to
the Accounts ending in the calendar month immediately preceding the month in
which each Distribution Date shall occur; provided, however, that the Initial
Due Period with respect to any Series will commence on the Closing Date with
respect to such Series.
DESCRIPTION OF THE CERTIFICATES
Payments received on the Trust's assets will be allocated among the
Certificateholders of all outstanding Series issued by the Trust (the
"Certificateholders' Interest") and the interest of the Transferors (the
"Transferor Interest").
Each Series of Certificates will evidence undivided interests in the assets of
the Trust and will represent the right to receive from the Trust Assets
(i) payments of interest at the specified rate or rates per annum (each, a
"Certificate Rate"), which may be a fixed rate, a floating rate or another
type of rate and (ii) (a) payments of principal during the Controlled
Amortization Period, the Early Amortization Period or the Rapid Amortization
Period (each, an "Amortization Period"), as specified in the related
Prospectus Supplement or (b) deposits of principal into the Principal Funding
Account during the Controlled Accumulation Period or the Early Accumulation
Period (each, an "Accumulation Period") 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 Certificates ("Senior Certificates") and one or more of
which may be Subordinated Certificates ("Subordinate Certificates"). Each
Class of a Series may evidence the right to receive a specified portion of
each distribution of principal or 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 the Trust will be allocated among the Certificateholders of each
Series and the holder of the Exchangeable Transferor Certificate. The
aggregate principal amount of the interest of the Certificateholders of a
Series is referred to herein as the "Invested Amount." The aggregate principal
amount of the interest of the holder of the Exchangeable Transferor
Certificate is referred to herein as the "Transferor Amount." See "Description
of the Certificates--General."
The Certificateholders' Interest will include the right to receive (but only
to the extent needed to make required payments under the Agreement and the
related Series Supplement and subject to any reallocation of such amounts if
the Series Supplement so provides) varying percentages of Yield Collections
and Principal Collections during each Due Period. In addition, a varying
percentage of Defaulted Receivables will be allocated to the
Certificateholders' Interest. Such varying percentages are referred to
collectively herein as the "Invested Percentage." The Prospectus Supplement
related to each Series will specify the Invested Percentages with respect to
the allocation of collections of Yield Collections, Principal Collections and
Defaulted Receivables 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
Trust allocable to the Certificates of such Series may be further allocated
among each Class in such Series as described in the related Prospectus
7
Supplement. See "Description of the Certificates--Allocation Percentages" and
"Pay Out Events."
The Certificates of each Series will represent undivided interests in the
Trust only and will not represent interests in or recourse obligations of and
will not be guaranteed by RFC, Centurion Bank, the Servicer, American Express
Company or any affiliate thereof.
The principal amount of the Transferor Interest will fluctuate as the amount
of the Receivables held by the Trust changes from time to time. Further, the
Transferors may tender the certificate which represents the Transferor
Interest (the "Exchangeable Transferor Certificate") or, if provided in the
related Series Supplement, certificates representing any Series of
certificates and the Exchangeable Transferor Certificate, to the Trustee and,
upon satisfying certain other terms and conditions, cause the Trustee to issue
one or more new Series, as described in "Description of the Certificates--
Exchanges." Any Exchange involving only the tender of the Exchangeable
Transferor Certificate to the Trustee will have the effect of decreasing the
Transferor Interest.
INTEREST
Interest on each Series of Certificates or Class thereof for each accrual
period (each, an "Interest Period") specified in the Prospectus Supplement
related to such Series will accrue at a per annum rate equal to the
Certificate Rate specified in such Prospectus Supplement and be distributed to
Certificateholders of such Series or Class thereof in amounts and on the dates
(which may be monthly, quarterly, semiannually or otherwise as specified
in such Prospectus Supplement) (each, a "Distribution Date"), specified in
such Prospectus Supplement. Interest payments on each Distribution Date will
be funded from Yield Collections allocated to the Certificateholders' Interest
during the preceding Due Period, as described in the related Prospectus
Supplement, and may be funded from certain investment earnings on funds in
certain accounts of the 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 distribution to the Certificateholders of such Series or
Class, all as described in the related Prospectus Supplement. See "Description
of the Certificates--General" and "--Distributions from the Collection Account."
PRINCIPAL
The principal of the Certificates of each Series offered hereby will be
scheduled to be paid commencing on a date specified in the Prospectus
Supplement related to such Series (the "Principal Commencement Date") either
in installments, in which case such Series may have a Controlled Amortization
Period, as described below, or in one full payment on an expected date
specified in the related Prospectus Supplement (the "Expected Final Payment
Date"), in which case such Series may have a Controlled Accumulation Period, as
described below, or on each Distribution Date after the Principal Commencement
Date to the extent of available Principal Collections, in which case such
Series will have a Rapid Amortization Period as described below. If a Series
has more than one Class of Certificates, a different method of paying
principal, and a different Principal Commencement Date or Expected Final
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 Expected Final Payment Date if a Pay
Out Event occurs and either the Early Amortization Period or the Early
Accumulation Period commences with respect to such Series or Class or under
certain other circumstances described in the Prospectus Supplement related to
such Series. The final principal payment with respect to the Certificates of a
Series or Class may also be made later than the Expected Final
Payment Date.
THE RFC RECEIVABLE PURCHASE AGREEMENT
RFC, as purchaser, has entered into a RFC Receivable Purchase Agreement, dated
as of June 30, 1992, as amended from time to time, with TRS, as seller (together
with any supplements thereto or assignments of Receivables in Additional
Accounts entered into pursuant thereto, "RFC Receivables Purchase Agreement").
Pursuant to the RFC Receivable Purchase Agreement, TRS has sold or will sell, as
applicable, to RFC all of TRS' right, title and interest in and to the
Receivables existing in the Designated Accounts owned by TRS and referred to in
the RFC Receivable Purchase Agreement on the Cut Off Date specified in the RFC
Receivable Purchase Agreement and arising from time to time thereafter and, when
added to the
8
Trust assets, the Receivables existing in any Additional Accounts on the
related Additional Account Cut Off Date and arising from time to time
thereafter. RFC, in turn, has transferred or will transfer, as applicable, to
the Trust, pursuant to the Agreement, those Receivables purchased by it from
TRS. RFC has assigned to the Trust all of its right, title and interest in and
to such Receivables and all of its rights under the RFC Receivable Purchase
Agreement. See "Description of the RFC Receivable Purchase Agreement."
EXCHANGES
The Agreement authorizes the Trustee to issue two types of certificates: (i)
one or more Series of certificates which may be in one or more classes and
which will be transferable and have the characteristics described below and
(ii) the Exchangeable Transferor Certificate, which initially will be held by
the Transferors and which will be transferable only as provided in the
Agreement. Pursuant to any one or more Series Supplements to the Agreement,
the holder of the Transferor Certificate may tender the Exchangeable
Transferor Certificate or, if permitted by the applicable Series Supplement,
certificates representing any Series of certificates (which may include Series
offered pursuant to this Prospectus) and the Exchangeable Transferor
Certificate, to the Trustee in exchange for one or more new Series (which may
include Series offered pursuant to this Prospectus) and a reissued
Exchangeable Transferor Certificate (any such tender, an "Exchange"). Under
the Agreement, the Transferors may define, with respect to any Series, the
Principal Terms of the Series. See "Description of the Certificates--
Exchanges". The Transferors may offer any Series 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 "Act") or exempt
from registration thereunder, directly or through one or more underwriters or
placement agents, in fixed-price offerings or in negotiated transactions or
otherwise.
Unless otherwise specified in the related Prospectus Supplement, an Exchange
may occur only upon delivery to the Trustee of the following: (i) a Series
Supplement specifying the Principal Terms of such Series, (ii) an opinion of
counsel to the effect that the certificates of such Series under existing law
will be characterized either as indebtedness or an interest in a partnership
for Federal income tax purposes and that the issuance of such Series will not
materially adversely affect the Federal income tax characterization of any
outstanding Series, (iii) if required by the related Series Supplement, a form
of Enhancement and any Agreement, (iv) written confirmation from the
applicable Rating Agency that the Exchange will not result in the Rating
Agency reducing or withdrawing its rating on any then-outstanding Series rated
by it, and (v) the existing Exchangeable Transferor Certificate and, if
applicable, the certificates representing the Series to be exchanged.
REGISTRATION OF THE CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued in book-entry form only and will
initially be represented by one or more Certificates registered in name of
Cede as the nominee of The Depository Trust Company ("DTC"). A Certificate
Owner will not be entitled to receive a definitive certificate representing
such person's interest, except in the event that Definitive Certificates are
issued under the limited circumstances described herein. All references herein
to Certificateholders shall refer to Certificate Owners, except as otherwise
specified herein. See "Description of the Certificates--Definitive
Certificates."
CLEARANCE AND SETTLEMENT
Unless otherwise provided in the related Prospectus Supplement, Certificate
Owners of each Series offered hereby may elect to hold their Certificates
through any of DTC (in the United States) or Clearstream or Euroclear (in
Europe). Transfers within DTC, Clearstream or Euroclear, as the case may be,
will be 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 depositories for Clearstream or Euroclear, on the other,
will be effected in DTC through the relevant depositories of Clearstream and
Euroclear. See "Description of the Certificates and the Agreement--Book-Entry
Registration" and "Annex I" hereto.
REVOLVING PERIOD
Unless otherwise specified in the related Prospectus Supplement, with respect
to each Series and any Class thereof, no principal will be payable to
Certificateholders until the Principal
9
Commencement Date or the Expected Final Payment Date with respect to such
Series or Class, as described below or, upon the occurrence of a Pay Out Event
which results in an Early Amortization Period, on the first Special Payment
Date. For each Due Period during the period beginning on the date of issuance
of the related Series (the "Closing Date") and ending on the day prior to the
day on which any Amortization Period, or any Accumulation Period commences
(the "Revolving Period"), all Principal Collections otherwise allocable to the
Certificateholders' Interest generally will be reinvested in the Trust or
otherwise used to maintain the Certificateholders' Interest or treated as
Excess Principal Collections and paid to the holders of other Series of
Certificates, 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 the termination of the Revolving Period prior to
its scheduled ending date.
CONTROLLED AMORTIZATION PERIOD
If the Prospectus Supplement relating to a Series so specifies, unless and
until a Pay Out Event shall have occurred with respect to such Series, the
Certificates of such Series or any Class thereof will have an amortization
period (the "Controlled Amortization Period") during which Principal
Collections allocable to the Certificateholders' Interest of such Series (and
certain other amounts if so specified in the related Prospectus Supplement)
will be used on each 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 plus any existing
deficit controlled amortization amount arising from prior Distribution Dates
(together with the Controlled Distribution Amount, the "Controlled
Amortization Amount"). If a Series has more than one Class of Certificates,
each Class may have a separate Controlled Amortization Amount. In addition,
the related Prospectus Supplement may describe certain priorities among such
Classes with respect to such distributions. 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 Early Amortization Period, (b) the commencement of the Early
Accumulation Period, (c) payment in full of the Invested Amount of such Series
or Class and (d) the Series Termination Date with respect to such Series.
CONTROLLED ACCUMULATION PERIOD
If the Prospectus Supplement relating to a Series so specifies, unless and
until a Pay Out Event has occurred, the Certificates of such Series will have
an accumulation period (the "Controlled Accumulation Period") during which
Principal Collections allocable to the Certificateholders' Interest of such
Series (and certain other amounts if so specified in the related Prospectus
Supplement) up to an amount (the "Controlled Deposit Amount") equal to an
amount specified in the related Prospectus Supplement plus any existing
controlled accumulation shortfall arising from prior Distribution Dates
(together with the Controlled Deposit Amount, the "Controlled Accumulation
Amount"), will be deposited on each Distribution Date in a Trust account to be
established in the name of the Trustee for the benefit of the
Certificateholders of such Series or Class (a "Principal Funding Account").
Any Principal Collections allocated to the Certificateholders' Interest in
excess of amounts required to be deposited in the Principal Funding Account
during the Controlled Accumulation Period may be treated as Excess Principal
Collections. See "Description of the Certificates--Distributions from the
Collection Account." 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 the
related Prospectus Supplement and continue until the earliest of (a) the
commencement of the Early Amortization Period, (b) the commencement of the
Early Accumulation Period, (c) payment in full of the Invested Amount of such
Series or Class and (d) the Series Termination Date with respect to such
Series. If specified in the related Prospectus Supplement, the Servicer may,
based on the payment rate on the Receivables and the amount of principal
distributable to Certificateholders of all outstanding Series issued
10
by the Trust, postpone the commencement of the Controlled Accumulation Period.
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 the Controlled Accumulation Period with
respect to a Series of Certificates, such Series may be subject to a principal
maturity guaranty or other similar arrangement. See "Description of the
Certificates--Principal Payments."
RAPID AMORTIZATION PERIOD
If the Prospectus Supplement relating to a Series so specifies, during the
period from the Principal Commencement Date with respect to such Series to the
earliest of the date on which the Invested Amount of such Series and the
Enhancement Invested Amount, if any, with respect to such Series have been
paid in full or the related Series Termination Date (the "Rapid Amortization
Period"), Principal Collections allocable to the Certificateholders' 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 monthly on each Distribution Date with
respect to such Series in the manner and order of priority set forth in the
related Prospectus Supplement. During the Rapid Amortization Period with
respect to a Series, distributions of principal to Certificateholders will not
be limited to any maximum amount.
EARLY AMORTIZATION PERIOD
If the Prospectus Supplement relating to a Series so specifies, during the
period beginning on the day on which a Pay Out Event occurs or is deemed to
have occurred with respect to a Series to the earlier of the date on which the
Invested Amount of such Series and the Enhancement Invested Amount, if any,
with respect to such Series, have been paid in full or the related Series
Termination Date (the "Early Amortization Period"), Principal Collections
allocable to the Certificateholders' Interest will no longer be reinvested in
the Trust or otherwise used to maintain the Certificateholders' Interest or
held in the Principal Funding Account, but instead will be distributed as
principal payments to the Certificateholders monthly on each Distribution Date
beginning with the first Special Payment Date (which will be the first
Distribution Date following the Due Period in which a Pay Out Event occurs or
is deemed to have occurred). In addition, unless otherwise specified in the
related Prospectus Supplement, after the occurrence of a Pay Out Event with
respect to a Series, any funds on deposit in the Interest Funding Account or
Principal Funding Account related to such Series will be paid to
Certificateholders of such Series on the first Special Payment Date. See
"Description of the Certificates--Pay Out Events" for a discussion of the
events which might lead to the commencement of an Early Amortization Period.
EARLY ACCUMULATION PERIOD
If the Prospectus Supplement relating to a Series so specifies, during the
period beginning on the day on which a Pay Out Event occurs or is deemed to
have occurred with respect to such Series until the earliest of (a) the
commencement of the Early Amortization Period, (b) payment in full of the
Investor Interest of the Certificates of such Series and, if so specified in
the related Prospectus Supplement, of the Enhancement Invested Amount, if any,
with respect to such Series and (c) the related Series Termination Date (the
"Early Accumulation Period"), Principal Collections allocable to the
Certificateholder's Interest will no longer be reinvested in the Trust or
otherwise used to maintain the Certificateholders' Interest, but instead will
be deposited in the Principal Funding Account on the dates indicated in the
related Prospectus Supplement, and used to make distributions of principal to
the Certificateholders of such Series or Class on the Expected Final Payment
Date. The amount to be deposited in the Principal Funding Account on each
Distribution Date during the Early Accumulation Period will not be limited to
the Controlled Deposit Amount. See "Description of the Certificates--Pay Out
Events" for a discussion of the events which might lead to commencement of a
Early Accumulation Period.
During the Early Accumulation Period, 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 or
make
11
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 Early
Accumulation Period with respect to a Series of Certificates, such Series may
be subject to a principal guaranty or other similar arrangement.
APPLICATION OF YIELD COLLECTIONS
Yield Collections allocable to the Certificateholders' Interest for any Due
Period will be applied in the following order of priority, unless otherwise
specified in the related Prospectus Supplement: (i) to the payment of interest
accrued for the current month ("Monthly Interest") and any overdue Monthly
Interest (with interest thereon) on the Certificates of such Series or Class;
(ii) to the payment of the Monthly Servicing Fee with respect to such Series
or Class plus any accrued Monthly Servicing Fee that was due but not paid on
any prior Distribution Date; (iii) to the reimbursement of unreimbursed
Investor Charge-Offs with respect to such Series or Class; (iv) to the
Investor Default Amount with respect to such Series or Class; and (v) to other
amounts specified in the related Prospectus Supplement.
PRINCIPAL COLLECTIONS; CERTAIN ALLOCATIONS
Principal Collections for any Due Period will be allocated to any Series or
Class on the basis of the Invested Percentage of such Series or Class with
respect to Principal Collections. Under the Agreement, such collections will
generally be reinvested in the Trust or otherwise used to maintain the
Certificateholders' Interest during the Revolving Period, paid to the
Certificateholders during any Amortization Period or deposited in the
Principal Funding Account during any Accumulation Period and paid to
Certificateholders on the Expected Final Payment Date with excess amounts, if
any, reinvested in the Trust or otherwise used to maintain the
Certificateholders' Interest.
During any Accumulation Period or any Amortization Period, as applicable, the
amount of Principal Collections allocable to the Certificateholders of a
Series issued will, unless otherwise specified in the related Prospectus
Supplement, equal the product of (a) the Principal Collections during the
related Due Period and (b) a fraction, the numerator of which is the Invested
Amount as of the end of the last day of the Revolving Period and the
denominator of which is the greater of (i) the product of the total amount of
Receivables in the Trust as of the last day of the prior Due Period and one
minus the Yield Factor (the "Trust Principal Component") and (ii) the sum of
the numerators used to calculate the Invested Percentage with respect to
Principal Collections for all Series of Certificates outstanding for the
current Distribution Date.
To the extent that Principal Collections and other amounts that are allocated
to the Certificateholders' Interest are available to be reinvested in the
Trust, they may be applied to cover principal payments due to or for the
benefit of investor Certificateholders of another Series, as specified in the
related Prospectus Supplement. Any such reallocation will not result in a
reduction in the Certificateholders' Interest. In addition, Principal
Collections and certain other amounts otherwise allocable to other Series, to
the extent such collections are available to be reinvested in the Trust, may
be applied to cover principal payments due to or for the benefit of the
Certificateholders, as specified in the related Prospectus Supplement. See
"Description of the Certificates--Principal Collections for all Series."
EXCESS PRINCIPAL COLLECTIONS
If so specified in the related Prospectus Supplement, to the extent that
Principal Collections that are allocated to the Certificateholders' Interest
of any Series are not needed to make payments or deposits with respect to such
Series, such Collections ("Excess Principal Collections") will be applied to
cover principal payments due to or for the benefit of Certificateholders of
another Series. Any such reallocation will not result in a reduction in the
Certificateholders' Interest of the Series to which such collections were
initially allocated.
ENHANCEMENT
Enhancement with respect to a Series or any Class thereof may be provided in
the form or forms of a letter of credit, a maturity guaranty facility, a cash
collateral account, a cash collateral guaranty, a collateral interest, a tax
protection agreement, an interest rate swap, an interest rate cap, a surety
bond, a guaranteed rate agreement, an insurance policy, a spread account, a
reserve account, a subordinated interest in the Receivables or certain cash
flows in respect of the Receivables or other contract or agreement for the
benefit of Certificateholders of such Series or Class. Enhancement may also
take the form of
12
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 as specified in the related Prospectus Supplement.
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 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 Enhancement will apply only in the
event of certain types of losses and the protection against losses provided by
such Enhancement will be limited. See "Enhancement" and "Risk Factors--Rating
of the Certificates."
SHARING OF EXCESS YIELD COLLECTIONS AMONG EXCESS ALLOCATION SERIES
To the extent provided in a Prospectus Supplement for a Series, such Series
may be designated as a Series that shares with other Series similarly
designated, subject to certain limitations, certain Excess Yield Collections
(as such term is defined herein) allocable to any such Series (an "Excess
Allocation Series"). Subject to certain limitations described under
"Description of the Certificates--Sharing of Excess Yield Collections Among
Excess Allocation Series", Yield Collections and certain other amounts
allocable to the Certificateholders' Interest of any Series that is designated
as an Excess Allocation Series in excess of the amounts necessary to make
required payments with respect to such Series (including payments to the
provider of any related Enhancement) will be applied to cover shortfalls with
respect to amounts payable from Yield Collections allocable to any other
Series designated as an Excess Allocation Series, in each case pro rata based
upon the respective Invested Amounts of such Series that have such a shortfall
with respect to the related Due Period. See "Description of the Certificates--
Sharing of Excess Yield Collections Among Excess Allocation Series."
SPECIAL FUNDING ACCOUNT
The Transferors, at their election, may at any time, other than during an
Early Amortization Period, deposit Excess Principal Collections which would
otherwise be payable to the Transferors into an account (the "Special Funding
Account"). Amounts on deposit in the Special Funding Account may be treated as
Principal Receivables for purposes of avoiding or delaying the occurrence of a
Pay Out Event which would otherwise occur if the Transferors were required to
designate Additional Accounts and did not have sufficient Eligible Accounts
for such purpose. Amounts deposited may be withdrawn by the Transferors at any
time, so long as after such withdrawal the Transferor Amount expressed as a
percentage of the Trust Principal Component (reduced by the Privileged Assets
Calculated Amount) is greater than or equal to the Minimum Transferor
Percentage. If any Accumulation Period or Amortization Period commences with
respect to any Series, any funds in the Special Funding Account will be
released and treated as Trust Excess Principal Collections to the extent
needed to cover principal payments due to or for the benefit of such Series as
described under "Description of the Investor Certificates--Special Funding
Account" and "Principal Payment Considerations".
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF THE TRUST
Each Series of Certificates will be subject to optional repurchase by the
Transferors on any Distribution Date on or after which the Invested Amount is
reduced to an amount less than or equal to 10% of the initial Invested Amount
or such other amount specified in the related Prospectus Supplement unless
certain events of bankruptcy, insolvency or receivership have occurred with
respect to either Transferor. Unless otherwise specified in the related
Prospectus Supplement, the repurchase price will be equal to the Invested
Amount plus accrued and unpaid interest on the Certificates through the day
preceding the Distribution Date on which the repurchase occurs. See
"Description of the Certificates--Final Payment of Principal; Termination of
Trust."
SERVICING
Under the Agreement, unless otherwise specified in the related Prospectus
Supplement, TRS, as
13
Servicer, will be responsible for servicing, managing and making collections
on all Receivables in the Trust. Unless otherwise specified in the related
Prospectus Supplement, subject to certain conditions, the Servicer may use for
its own benefit and will not segregate collections of Receivables received in
each Due Period until the business day preceding the Distribution Date
succeeding such Due Period. During each Due Period, the Servicer will allocate
as described herein all Collections received with respect to such Due Period
to the Certificateholders' Interest, any other applicable Series and the
Transferor Interest. On the business day prior to the Distribution Date, the
Servicer will deposit the portion allocable to the Certificateholders'
Interest and the holders of certificates of any other Series into a segregated
trust account held in the name of the Trustee for the benefit of
Certificateholders (the "Collection Account"). See "Description of the
Certificates--Application of Collections." In certain circumstances, TRS may
resign or be removed as Servicer, in which event either the Trustee or another
entity may be appointed as successor Servicer (TRS or any such successor
Servicer is referred to herein as the "Servicer"). As servicing compensation
from the Trust, the Servicer will receive a Servicing Fee from allocations of
Yield Collections based upon the outstanding principal amount, from time to
time, of certificates issued by the Trust and certain other amounts, as
described herein. See "Description of the Certificates--Servicing Compensation
and Payment of Expenses."
TAX STATUS
Except to the extent otherwise specified in the related Prospectus Supplement,
Special Counsel to the Transferors is of the opinion that under existing law
the Certificates of each Series will be characterized as debt for federal
income tax purposes. Except to the extent otherwise specified in the related
Prospectus Supplement, the Certificate Owners will agree to treat the
Certificates as debt for federal, state and local income and franchise tax
purposes. See "Federal Income Tax Consequences" for additional information
concerning the application of federal income tax laws.
ERISA CONSIDERATIONS
See "ERISA Considerations" herein and "Summary of Series Terms--ERISA
Considerations" in the applicable Prospectus Supplement.
RATING
It is a condition to the issuance of each Series of Certificates or Class
thereof offered hereby that they be rated in one of the four highest rating
categories by at least one nationally recognized 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. See "Risk
Factors--Rating of the Certificates."
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.
14
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with an investment in the 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 will continue
for the life of such Certificates.
The amount of credit enhancement of the
Class A certificates provided by the
subordination of the Class B
certificates is limited. Payment of
interest on the Class B certificates is
subordinated to the payment of interest
on the Class A certificates on each
distribution date. The payment in full
of the Class B certificates is
subordinated to the payment in full of
the Class A certificates. The Class B
invested amount will be reduced on any
distribution date to the extent yield
collections allocable to pay the
investor default amount are
insufficient, which reduction will
result in the reduction of the amount of
yield collections allocable to the
certificateholders' interest in future
due periods. If the Class B invested
amount is reduced to zero, the Class A
certificateholders will bear directly
the credit and other risks associated
with their undivided interest in the
trust and the Class A invested amount
may be reduced.
Certain Matters Relating to TRS represents and warrants that its
the Transfer of the Receivables transfer of receivables to RFC is an
absolute sale of those receivables. RFC
and Centurion Bank each represents and
warrants that its transfer of
receivables to the Trustee is either (i)
an absolute sale of those receivables or
(ii) the grant of a security interest in
those receivables. For a description of
the Trustee's rights if these
representations and warranties are not
true, see "Description of the
Certificates -- Representations and
Warranties" in this prospectus.
Each of Centurion Bank, TRS, and RFC takes
steps under the UCC to perfect its
transferee's interest in the
receivables. Nevertheless, if the UCC
does not govern these transfers and if
some other action is required under
applicable law and has not been taken,
payments to you could be delayed or
reduced.
Each of Centurion Bank, TRS, and RFC
represents, warrants, and covenants that
its transfer of receivables is perfected
and free and clear of the lien or
interest of any other entity, except for
certain permitted liens. If this is not
true, the Trustee's interest in the
receivables could be impaired, and
payments to you could be delayed or
reduced. For instance,
o a prior or subsequent transferee of
receivables could have an interest in
the receivables superior to the
interest of the Trustee;
o a tax, governmental, or other
nonconsensual lien that attaches to the
property of Centurion Bank, TRS, or RFC
could have priority over the interest
of the Trustee in the receivables;
15
o the administrative expenses of a
conservator, receiver, or bankruptcy
trustee for Centurion Bank or TRS could
be paid from collections on the
receivables before Certificateholders
receive any payments; and
o if insolvency proceedings were commenced
by or against TRS, or if certain time
periods were to pass, the Trustee may
lose any perfected interest in
collections held by TRS and commingled
with other funds.
Potential Effects of Centurion Bank is chartered as a Utah
Conservatorship, Receivership industrial loan corporation and is
or Bankruptcy of Centurion Bank, regulated and supervised by the Utah
TRS, or their Affiliates Department of Financial Institutions,
which is authorized to appoint the
Federal Deposit Insurance Corporation as
conservator or receiver for Centurion
Bank if certain events occur relating to
Centurion Bank's financial condition or
the propriety of its actions. In
addition, the FDIC could appoint itself
as conservator or receiver for Centurion
Bank.
The Federal Deposit Insurance Act, as
amended by the Financial Institutions
Reform, Recovery and Enforcement Act of
1989, provides that certain agreements
and transfers of property by a financial
institution cannot be enforced against
the FDIC. Opinions and policy statements
issued by the FDIC suggest that, because
of the manner in which these
transactions are structured, the FDIC
would respect the transfer of
receivables by Centurion Bank.
Nevertheless, if the FDIC were to assert
a contrary position, or were to require
the Trustee to go through the
administrative claims procedure
established by the FDIC in order to
obtain payments on the receivables, or
were to request a stay of any actions by
the Trustee to enforce the Agreement or
the Certificates against Centurion Bank,
delays in payments on the Certificates
and possible reductions in the amounts
of those payments could occur.
In addition, the FDIC as conservator or
receiver for Centurion Bank could
repudiate the Agreement. The FDIA would
limit the damages for this repudiation
to "actual direct compensatory damages"
determined as of the date that the FDIC
was appointed as conservator or
receiver. The FDIC, moreover, could
delay its decision whether to repudiate
the Agreement for a reasonable period
following its appointment as conservator
or receiver. Therefore, if the FDIC as
conservator or receiver for Centurion
Bank were to repudiate the Agreement,
the amount payable to you could be lower
than the outstanding principal and
accrued interest on the Certificates,
thus resulting in losses to you.
If TRS or any of its affiliates were to
become a debtor in a bankruptcy case,
the court could exercise control over
the receivables on an interim or a
permanent basis. Although steps have
been taken to minimize this risk, TRS or
any of its affiliates as debtor-in-
possession or another interested party
could argue that--
o TRS did not sell the receivables to RFC
but instead borrowed money from RFC and
granted a security interest in the
receivables;
16
o RFC and its assets (including the
receivables) should be substantively
consolidated with the bankruptcy estate
of TRS or any of its affiliates; or
o the receivables are necessary for TRS
or any of its affiliates to reorganize.
If these or similar arguments were made,
whether successfully or not, payments to
you could be delayed or reduced.
If TRS or any of its affiliates were to
enter bankruptcy, moreover, the Trustee
and the Certificateholders could be
prohibited from taking any action to
enforce the RFC Receivables Purchase
Agreement or the Agreement against TRS
or those affiliates without the
permission of the bankruptcy court.
Certificateholders also may be required
to return payments already received if
TRS were to become a debtor in a
bankruptcy case.
Regardless of any decision made by the
FDIC or ruling made by a court, the fact
that Centurion Bank has entered
conservatorship or receivership or that
a bankruptcy case has been commenced by
or against TRS or its affiliates could
have an adverse effect on the liquidity
and value of the Certificates.
In addition, regardless of the terms of
the Agreement or any other transaction
document, and regardless of the
instructions of those authorized to
direct the Trustee's actions, the FDIC
as conservator or receiver for Centurion
Bank or a court overseeing the
bankruptcy case of TRS or any of its
affiliates may have the power (i) to
prevent or require the commencement of
an Early Amortization Period, (ii) to
prevent, limit, or require the early
liquidation of receivables and
termination of the Trust, or (iii) to
require, prohibit, or limit the
continued transfer of receivables.
Furthermore, regardless of the terms of
the Agreement or any other transaction
document, a bankruptcy court (i) could
prevent the appointment of a successor
Servicer or (ii) could authorize TRS to
stop servicing the receivables or
providing administrative services for
RFC. If any of these events were to
occur, payments to you could be delayed
or reduced.
Potential Effects of The Accounts and Receivables are subject
Consumer Protection Laws to numerous federal and state consumer
protection laws which impose
requirements on the solicitation,
making, enforcement and collection of
consumer credit. Such laws, as well as
any new laws or rulings which may be
adopted (including, but not limited to,
federal or state interest rate or fee
caps on credit or charge cards), may
adversely affect the Servicer's ability
to collect on the Receivables or the
Account Originator's ability to maintain
the required level of annual membership
fees and other fees. In addition,
failure by the Servicer to comply with
such requirements could adversely affect
the Servicer's ability to enforce the
Accounts or Receivables.
Pursuant to the Agreement, the Account
Originator will make certain
representations and warranties relating
to the validity and enforceability of
the Accounts and each of the Transferors
will make certain representations and
warranties relating to the validity and
enforceability of the Receivables, and
pursuant to the Receivable Purchase
Agreement, TRS will make similar
representations and warranties with
respect to the Receivables.
17
However, it is not anticipated that the
Trustee will make any examination of the
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 not
complied with and such noncompliance
continues beyond the applicable cure
period, is that the Receivables affected
thereby will be reassigned to the
Transferors (in the case of RFC, for
reassignment, in turn, to TRS pursuant
to the Receivable Purchase Agreement) or
assigned to the Servicer, as the case
may be. In addition, in the event of the
breach of certain representations and
warranties, the Transferors may be
obligated to accept the reassignment of
the entire Trust portfolio, in which
case a Pay Out Event would occur,
causing Certificateholders to receive
principal payments on their certificates
sooner than anticipated and thereby
reducing the anticipated yield on such
Certificates. For more information
regarding the foregoing, see
"Description of the Certificates--
Covenants, Representations and
Warranties" and "--Servicer Covenants"
and "Certain Legal Aspects of the
Receivables--Consumer Protection Laws."
Application of federal and state
bankruptcy and debtor relief laws would
affect the interests of
Certificateholders in the Receivables if
such laws result in any Receivables
being written off as uncollectible when
there are no funds available pursuant to
any applicable Enhancement or other
sources. For more information regarding
the foregoing, see "The Pooling and
Servicing Agreement Generally--Defaulted
Receivables; Recoveries; Adjustments."
Potential Effect of Non-Compliance The Bank Holding Company Act of 1956, as
with the BHC Act amended ("BHC Act"), contains provisions
that prohibit certain overdrafts by
Centurion Bank on its account at a
Federal Reserve Bank on behalf of an
affiliate or by an affiliate on its
account at Centurion Bank. Violation of
these provisions would result in
Centurion Bank being deemed to be a
"bank" under the BHC Act, requiring TRS
and American Express Company either to
divest control of Centurion Bank or to
comply with other provisions of the BHC
Act.
Legislation From time to time, there are proposed in
the Congress and certain state
legislatures new laws and amendments to
existing laws to regulate further the
consumer credit industry. The
Transferors are unable to determine and
have no basis on which to predict
whether or to what extent changes in
laws or regulations will affect charge
use, payment patterns or revenues.
Payments and Maturity The Receivables may be paid at any time
and there is no assurance that there
will be additional Receivables created
in the Designated Accounts or that any
particular pattern of repayments will
occur. A significant decline in the
amount of Receivables generated in the
Designated Accounts could result in
commencement of an Early Amortization
Period for any or all related Series.
The Agreement provides that the
Transferors are required to designate
Additional Accounts, from which
Receivables that are in existence on, or
that come into existence after, a cut
off date specified by the Transferors
(each such date, an "Additional
18
Account Cut-Off Date") will be added to
the Trust if as of the end of any two
consecutive Due Periods the Transferor
Amount as a percentage of the Trust
Principal Component (reduced by the
Privileged Assets Calculated Amount) is
not maintained at the Minimum Transferor
Percentage or the Trust Principal
Component (as so reduced) falls below
the Minimum Trust Principal Component.
Either Transferor may designate
Additional Accounts to the Trust. In the
case of RFC, the RFC Receivables
Purchase Agreement provides that, upon
request of RFC, TRS may designate
Additional Accounts the receivables of
which will be sold to RFC and
transferred to the Trust in such event.
The Minimum Trust Principal Component
for the Trust may be increased by Series
Supplements pursuant to which additional
Series are issued by the Trust, or
decreased due to the retirement of any
Series issued by the Trust or if the
Trustee receives written notice from the
applicable Rating Agency that such
decrease will not result in a withdrawal
or reduction of its rating of the
Certificates issued by the Trust. There
can be no assurance that TRS or
Centurion Bank will have eligible
Additional Accounts to so designate. If
Additional Accounts are not designated
by the Transferors when required, a Pay
Out Event may occur with respect to any
related Series and an Early Amortization
or Early Accumulation Period for such
Series would commence with respect to
such Series. A significant decrease in
the rate of repayment by Cardmembers of
the outstanding balances or an increase
in defaults or delinquencies of
Designated Accounts could delay the
return of principal and could cause a
loss of principal to Certificateholders.
See "Domestic Consumer Charge Card
Business."
In addition to the foregoing, subject to
the limits and conditions described in
this paragraph, the Transferors may also
from time to time, at their sole
discretion, designate newly originated
Eligible Accounts to be included as
Designated Accounts (such Accounts are
referred to herein as "New Accounts").
If the number of New Accounts designated
with respect to any three consecutive
Due Periods would not exceed 15% of the
number of Designated Accounts as of the
first day of the calendar year in which
such Due Periods commence or the number
of New Accounts designated during any
such calendar year would exceed 20% of
the number of Designated Accounts as of
the first day of such calendar year then
such New Accounts may be added to the
Trust if the Transferors receive from
Moody's written confirmation that such
addition will not result in a downgrade
or withdrawal of their then current
rating of any outstanding Series. If the
number of New Accounts designated
exceeds such percentages during such
time periods then such New Account may
be added to the Trust if the Transferors
receive written confirmation from each
of Moody's Investors Service, Inc.
("Moody's") and Standard and Poor's
Ratings Services ("S&P") that such
addition will not result in a downgrade
or withdrawal of their respective then
current rating of any outstanding
Series. The designation of New Accounts
may be made at random or according to
the application of criteria that may be
prescribed
19
from time to time by the Transferors,
but, in all cases, the designation of
New Accounts will be subject to certain
conditions, including the following: (a)
the New Accounts must all be Eligible
Accounts and (b) at the time of transfer
of the Additional Accounts neither
Transferor is insolvent or will be made
insolvent as a result of such transfer.
When used herein, the term "Additional
Accounts" includes the New Accounts
described in this paragraph.
Social, Legal, Economic Changes in Card use and payment patterns
and Other Factors by Cardmembers whose Accounts are
included in the Trust may result from a
variety of social, legal and economic
factors. Economic factors including the
rate of inflation and unemployment will
also be reflected in changes in consumer
spending and payment patterns, including
increased risk of default by
Cardmembers. There can be no assurance
as to what extent social, legal and
economic factors will affect future
charge and repayment patterns.
The acts of terrorism which occurred in
the United States on September 11, 2001
had a significant impact on the overall
economy in the United States, including
declines in corporate travel and
entertainment spending and consumer
travel since September 11, 2001. The
ongoing effect of these events and of
other terrorist acts on the U.S. economy
and consumer spending is unclear. We
cannot predict how these or other
factors will affect Card use, payment
patterns and remittance practices.
Political and military actions in
response to these events and other
terrorist acts and the impact of those
actions on Card use, payment patterns
and remittance practices are also
unclear. In addition, existing and
future legislation may impact the
incurrence of consumer debt and payment
of Card balances. In particular, under
the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended, members of the
military, including reservists, on
active duty who have entered into
obligations, such as incurring Card
debt, before being called to active duty
may be entitled to a stay of collection
efforts. We have no information at this
time concerning how many accounts in the
trust portfolio may be affected by the
limitations and restrictions of the
Soldiers' and Sailors' Civil Relief Act.
We cannot predict how any of these or
other factors will affect creation of
Receivables in the Designated Accounts
or repayment patterns and, consequently,
the timing and amount of payments on
Certificates of your Series. A
significant decline in the amount of
Receivables generated in the Designated
Accounts could result in commencement of
an Early Amortization Period for any or
all related Series. A reduction in the
amount or timing of payments of
Receivables will reduce the amount
available for distribution on the
Certificates of such Series.
Competition There exists substantial and increasingly
intense competition worldwide with
respect to the American Express Card,
the American Express Gold Card and the
Platinum Card (collectively, the "Cards"
and each a "Card") from other financial
institutions (such as MBNA, Citigroup
and Bank of America) that have VISA(R)
and MasterCard(R) credit card programs
that issue general-purpose credit cards,
primarily under revolving credit
20
plans. As a network, Centurion and TRS
also encounter intense competition from
card systems like VISA, MasterCard,
Diners Club(R), Morgan Stanley Dean
Witter & Co.'s Discover(R)/NOVUS(R)
Network and JCB. There is also
competition from businesses that issue
their own cards or otherwise extend
credit to their customers, such as
retailers and airline associations.
Numerous United States banks issuing
credit cards under revolving credit
plans charge annual fees in addition to
interest charges where permitted by
state law. However, the issuer of the
Discover Card on the Discover/NOVUS
Network, as well as many issuers of VISA
cards and MasterCard cards, generally
charge no annual fees.
Card issuers compete with each other by
offering a variety of products and
services, including premium cards with
enhanced services or lines of credit,
airline frequent flyer program mileage
credits and other reward or rebate
programs, "teaser" promotional rates,
and co-branded arrangements with
partners that offer benefits to
cardholders. Recently, mergers and
consolidations of banking and financial
services companies and credit card
portfolio acquisitions by major issuers
have produced larger card issuers which
compete with greater resources,
economies of scale and potential brand
recognition, and a smaller number of
dominant issuers has emerged. There has
also been an increased use of debit
cards for point of sale purchases as
many banks have replaced traditional ATM
cards with general purpose debit cards
bearing either the VISA or MasterCard
logo, some of which may also be linked
to loyalty or reward programs.
The principal competitive factors that
affect the Card business are (i) the
quality of the service and services,
including rewards programs, provided to
Cardmembers; (ii) the number, spending
habits and credit performance of
Cardmembers; (iii) the quantity and
quality of the businesses that accept
the Card; (iv) the cost of Cards to
Cardmembers and Card acceptance to
participating establishments; (v) the
terms of payment available to
Cardmembers; (vi) the nature and quality
of expense management data capture, and
reporting capability; (vii) the number
and quality of other payment instruments
available to Cardmembers; (viii) the
success of targeted marketing and
promotion campaigns; (ix) reputation and
brand recognition; and (x) the ability
of issuers to implement operational and
cost efficiencies.
If consumers choose to use competing
sources of payment other than the Card,
the rate at which new Receivables are
generated in the Designated Accounts may
be reduced and certain purchase and
payment patterns with respect to
Receivables may be affected. The Trust
will be dependent upon the continued
ability of TRS and Centurion Bank to
generate new Receivables. If the rate at
which new Receivables are generated
declines significantly and the
Transferors do not add Additional
Accounts, a Pay Out Event could occur,
in which event an Early Amortization or
Early Accumulation Period would
commence. A significant decrease in the
usage of the Designated Accounts could
also delay the return of principal on or
following the Expected Final Payment
Date and extend the period during which
charged-off Receivables may
21
be allocated to the Certificates. See
"Description of the Certificates--
Investor Charge-Offs" and "--Pay Out
Events."
Effect of Subordination With respect to Certificates of a Series
having a Class or Classes of
Subordinated Certificates, unless
otherwise specified in the related
Prospectus Supplement, payments of
principal in respect of the Subordinated
Certificates of a Series will not
commence until 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 Yield
Collections allocable to the
Certificates of a Series are
insufficient to cover required amounts
due with respect to the Senior
Certificates of such Series, the
Invested Amount with respect to the
Subordinated Certificates may be
reduced, resulting in a reduction of the
portion of Yield Collections 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 due
to the insolvency of the seller or the
appointment of a conservator or receiver
for the seller, 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.
Ability to Change Terms Pursuant to the RFC Receivable Purchase
of the Designated Accounts Agreement, TRS has not transferred to
RFC, and, pursuant to the Agreement, the
Transferors have not transferred to the
Trust, the Designated Accounts but only
the Receivables arising in the
Designated Accounts. As owner of the
Accounts, TRS, Centurion Bank or any
other seller has the right to determine
the fees which will be applicable from
time to time to the Designated Accounts,
to alter the payment terms required
under the Designated Accounts and to
change various other terms with respect
to the Designated Accounts. In servicing
the Designated Accounts, the Servicer is
required to exercise the same care and
apply the same policies that it
exercises in handling similar matters
for its own or other comparable
accounts. The owners of the Designated
Accounts, TRS and Centurion Bank (each,
an "Account Originator"), have agreed
not to change the terms of the
Designated Accounts unless the change is
also made applicable to the comparable
segment of their respective portfolios
of accounts with characteristics similar
to the Designated Accounts. Except as
specified above, there are no
restrictions on the ability of the
Account Originators to change the terms
of the Designated Accounts. There can be
no assurances that changes in the
marketplace or prudent business practice
might not result in a determination by
an Account Originator to change payment
or other terms of the Designated
Accounts in the future. The Transferors
have the right and may be required from
time to time to designate Additional
Accounts for inclusion in the Trust
which Additional Accounts may not be of
the same credit quality as the initial
Designated Accounts. See "Description of
the Certificates--Addition of Accounts."
22
Ability to Change Yield Factor Unless otherwise specified in the related
Prospectus Supplement, the Receivables
originated under the Designated Accounts
are not subject to a monthly finance
charge. As a result, in order to provide
yield to the Trust on such Receivables,
pursuant to the Agreement a portion of
Collections received in any period equal
to the product of Collections and the
Yield Factor will be treated as "Yield
Collections" and the remainder of such
Collections will be treated as
"Principal Collections". Recoveries will
not be considered Collections but will
instead be utilized as an offset to
Defaulted Receivables. The Yield Factor
is 3.0% under the Agreement. Any
increase in the Yield Factor would
result in a higher yield on the
Receivables originated under the
Designated Accounts and a slower payment
rate of Principal Collections than
otherwise would occur. Conversely, any
decrease in the Yield Factor would
result in less yield on such Receivables
and a faster payment rate of Principal
Collections than otherwise would occur.
Pursuant to the Agreement, upon receipt
of written confirmation from Moody's
that such action will not cause a
downgrade or withdrawal of Moody's then
current rating of any outstanding
Series, and without notice to or the
consent of Certificateholders, the
Transferors have the ability to change
the Yield Factor applied to Collections;
the Transferors may not, however, reduce
the Yield Factor at any time below 3.0%,
nor may the Transferors increase the
Yield Factor above 5.0%. In addition,
the Transferors may not otherwise change
the Yield Factor if a Pay Out Event has
occurred and is continuing, or, as a
result of such change, its reasonable
expectation is that a Pay Out Event
would occur. In the event that the
Servicer is not required to make daily
deposits of Collections in the
Collection Account at the date of such
change, the Transferors may specify
either the first day of the current Due
Period or the first day of the next
succeeding Due Period as the effective
date of such change. Under the
Agreement, if the Servicer is required
to make daily deposits of Collections in
the Collection Account at the time of
such change, the Transferors may specify
that the date all of the conditions
specified in the Agreement regarding
changing the Yield Factor are met is the
effective date of such change.
Master Trust Considerations The Trust, as a master trust, previously
has issued Series of Certificates prior
to the date of this Prospectus, and is
expected to issue additional Series from
time to time. While the Principal Terms
of any Series will be specified in a
related Series Supplement, the
provisions of a Series Supplement and,
therefore, the terms of any additional
Series, will not be subject to the prior
review or consent of Certificateholders
of any previously issued Series. Such
Principal Terms may include methods for
determining applicable investor
percentages and allocating collections,
provisions creating different or
additional security or other credit
enhancement, 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 Agreement which is
made applicable only to such Series. See
"Description of the Certificates--
Exchanges" and "--Addition of Accounts."
It is a
23
condition precedent to the issuance of
any additional Series by the Trust that
each Rating Agency shall have advised
the Trustee that the issuance of such
Series will not result in the reduction
or withdrawal of their rating of any
outstanding Series previously issued by
the Trust. There can be no assurance
that the Principal Terms of any Series
issued from time to time will not have
an impact on the timing and amount of
payments received by a Certificateholder
of any other Series of that Trust.
Finally, certain remedies may require
the consent of a majority of the holders
of all outstanding Series of
certificates of the Trust, and the
interest of the holders of one Series of
certificates may conflict with the
interest of another Series of
certificates. See "Description of the
Certificates--Exchanges."
Rating of the Certificates It is a condition to the issuance of the
Certificates of each Series or Class
offered hereby that they be rated in one
of the four highest rating categories by
at least one nationally recognized
rating agency (the rating agency or
rating agencies selected by the
Transferors to rate the certificates of
a Series is herein referred to as the
"Rating Agency"). The rating will not be
a recommendation to purchase, hold or
sell Certificates, inasmuch as such
rating does not comment as to market
price or suitability for a particular
investor. The rating of the Certificates
will not address the possibility of the
imposition of United States withholding
tax on non-U.S. persons or back-up
withholding for U.S. persons. The rating
of the Certificates will address the
likelihood of the ultimate payment of
principal and interest on the
Certificates. However, the Rating Agency
will not evaluate, and the rating of the
Certificates will not address, the
likelihood that the outstanding
principal amount of the Certificates
will be paid by the Expected Final
Payment Date.
Book-Entry Registration Unless otherwise specified in the related
Prospectus Supplement, the Certificates
of each Series initially will be
represented by 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. Because of this, unless and
until Definitive Certificates are
issued, Certificate Owners will not be
recognized by the Trustee as
Certificateholders, as that term will be
used in the Agreement. Hence, until such
time, Certificate Owners will only be
able to receive payments from, and
exercise the rights of
Certificateholders indirectly through,
DTC, Clearstream or Euroclear and their
respective participating organizations,
and, unless a Certificate Owner requests
a copy of any such report from the
Trustee, will receive reports and other
information provided for under the
Agreement only if, when and to the
extent provided to Certificate Owners by
DTC, Clearstream or Euroclear and their
respective participating organizations.
In addition, the ability of Certificate
Owners to pledge Certificates to persons
or entities that do not participate in
the DTC system, or otherwise take
actions in respect of such Certificates,
may be limited due to the lack of
physical certificates for such
Certificates. See "Description of the
Certificates--Book-Entry Registration"
and "--Definitive Certificates."
24
DOMESTIC CONSUMER CHARGE CARD BUSINESS
General
Consumer charge card receivables are generated from transactions made by
residents of the United States (including certain of its territories and
possessions) that have American Express Cards, American Express Gold Cards and
Platinum Cards (each such person, a "Cardmember"; and each such card, a
"Card"). Cards are accepted at service establishments worldwide, and may be
used for the purchase of merchandise and services. Each Card is associated
with an account owned by an Account Originator (an "Account"), the full
Receivables balance of which is due upon receipt of a monthly billing
statement and is generally not subject to finance-charge assessments. The
Accounts do not have pre-set spending limits and are subject to the approval
process described below. Accounts may be combined, or be part of,
multifeatured accounts that offer the Cardmembers other credit products,
including revolving credit products, the receivables of which will not be
Eligible Receivables and will not be conveyed to the Trust. The Accounts are
serviced, and are expected to continue to be serviced, by TRS, primarily at
TRS' facilities at several locations in the United States.
The American Express Card was launched in 1958, the American Express Gold
Card in 1966, and the Platinum Card in 1984. Account charges are subject to an
approval process based on the Cardmember's past spending and payment patterns,
credit history and personal resources. Accounts are designed for use as a
method of payment, not as a means for financing the purchase of merchandise
and services. See "Distinctions Between Accounts and Revolving Credit Plan
Products" and "Billing and Fees" below.
Underwriting and Authorization Procedures
Accounts are originated primarily through pre-approved, direct mail
solicitations (the "Pre-Approved Process") and through receipt of applications
available to the public through a variety of channels, including service
establishments, financial institutions, publications and over the Internet and
telephone (the "Application Process"). The pre-approved process involves
determining in advance that a person may qualify for an Account. The Account
Originator selects certain persons on the basis of such persons' activities
(e.g., holding credit cards, magazine or newspaper subscriptions, club
memberships, college enrollment). Typically, these names are submitted to
credit bureaus, and the Account Originator provides the bureaus with screening
criteria. These criteria were initially developed from TRS' proprietary risk
and profitability models and commercially available risk evaluation scores.
Persons who meet these criteria are solicited to become Cardmembers. Additional
screening is conducted on applicants who reply to pre-approved offers.
The application process is used for evaluation of unsolicited applications
and certain other categories of applicants. The primary sources of unsolicited
applications are the American Express "Take-One" boxes located in a variety of
public establishments, the "inbound" telemarketing program featuring the 1-
800-THE-CARD telephone number and Internet channels. The application process
entails receiving a completed application, evaluating the application using
proprietary scoring models and credit bureau information, screening out prior
delinquencies and incidents of fraud with TRS or Centurion Bank, and verifying
that the information on the application is both accurate and provided by the
true applicant. For some categories of applicants (e.g., undergraduate or
graduate students), the Account Originator requires less information and bases
its credit decision on individual and aggregate factors. The Account
Originator may also request less information on certain applications. Where
such information supplemented by credit bureau data is insufficient for the
Account Originator to make a decision, the Account Originator requests further
information from the applicant.
In addition to the credit review performed in connection with origination of
Accounts, utilization of the Accounts is subject to authorization at the time
of such utilization based upon the Cardmember's past spending and payment
activity, credit history and personal resources. Certain utilizations, such as
purchases indicating out-of-pattern spending, initial utilizations on new
accounts, charges to non-current accounts and Accounts that the Account
Originator determines to have a higher credit risk, are subject to closer
credit scrutiny.
Billing and Fees
Each Cardmember is subject to an agreement with an Account Originator
governing the terms and conditions of the Account. Each Account Originator
reserves the right to add, change or terminate any terms or conditions of the
Account (including increasing or decreasing fees). The ability of an Account
Originator to make such changes is subject to the requirements of applicable
laws and to certain limitations in the Agreement and the
25
RFC Receivable Purchase Agreement. Pursuant to Account agreements, Cardmembers
are charged an annual membership fee of $55 for the American Express Card, $75
for the American Express Gold Card and $300 for the Platinum Card. In the
Senior Membership program, Cardmembers aged 62 and over that are enrolled in
the program are charged an annual membership fee of $35 for the American
Express Card and $55 for the American Express Gold Card. Except in the limited
circumstances related to Recovery Arrangements and described under "Domestic
Consumer Charge Card Business--Collection Efforts," no monthly finance charges
are assessed and the full balance is due upon receipt of each month's billing
statement. The Accounts are grouped into billing cycles for purposes of
administrative efficiency. In accordance with TRS' usual servicing procedures
the payment status of an Account is determined by reference to the cycle
billing date for such Account.
Unless otherwise specified in the related Prospectus Supplement, other fees
associated with the Accounts include (i) a fee of $30 for each additional
American Express Card ($20 if the Cardmember is 62 years or older and part of
the Senior Membership program), $35 for each additional American Express Gold
Card ($25 if the Cardmember is 62 years or older and part of the Senior
Membership program), and $150 for the first additional Platinum Card, (ii)
returned payment fees, and (iii) late fees.
Collection Efforts
Each Account Originator will consider an Account delinquent after a charge
first appears as part of an unpaid "Previous Balance" on any monthly billing
statement. Efforts to collect delinquent Account balances are made by TRS as
Servicer and collection agencies and attorneys retained by such collection
agencies and by TRS as Servicer. Under current practice, the Account
Originator includes a request for payment of any overdue amounts on all
billing statements following delinquency. The Account Originator uses its
proprietary risk and profitability evaluation systems to determine the
appropriate collection strategy. Cardmembers considered to be high risk may be
contacted by either a letter or a telephone call when an Account becomes
delinquent, or prior to delinquency based on a number of factors, including
the Cardmember's tenure and the amount owed in relation to prior spending and
payment behavior. If it is determined that the Cardmember may be unable to pay
the outstanding balance, the Account may be "preempted"--i.e., the Account is
cancelled, charge privileges are revoked, and a more intensive collection
action is initiated. For all other Cardmembers with delinquent balances,
charge privileges are generally cancelled 90 days from the date of the billing
statement on which a charge first appeared (the "Original Billing Date"). For
both the preempted Accounts and those reaching the 90 days status, attorney
demand letters may also be sent. If an Account remains delinquent, it may be
sent to collection agencies who continue with telephone calls and letters.
Legal action may be instituted. Arrangements may be made with Cardmembers to
extend or otherwise change payment schedules to maximize collections. In some
cases, an Account Originator and a delinquent Cardmember may agree to an
arrangement (a "Recovery Arrangement") that will simultaneously suspend the
charge privileges associated with the Cardmember's Account and obligate the
Cardmember to repay delinquent balances in his or her Account in installments
according to an agreed-upon installment plan.
Pursuant to the Agreement, the Receivables in a Designated Account will be
charged-off no later than the date when the Account remains unpaid for 360
days from the Original Billing Date. The Receivables in a Designated Account
owned by Centurion Bank will generally be charged-off after the Account
remains unpaid for six contractual payment dates, approximately 180 days from
the Original Billing Date. In either case, charge-offs may be made earlier in
some circumstances. The credit evaluation, servicing, charge-off and
collection practices of the Account Originators and the Servicer, as
applicable, may change over time in accordance with its business judgment and
applicable law.
Distinctions Between Accounts and Revolving Credit Plan Products
There are important distinctions between Accounts and revolving credit plan
products. Accounts have no pre-set spending limit and are designed for use as
a convenient method of payment for the purchase of merchandise and services.
Accounts cannot be used as a means of financing such purchases. Accordingly,
the full balance of a month's purchases is billed to Cardmembers and is due
upon receipt of the billing statement. By contrast, revolving credit plans
allow customers to make a minimum monthly payment and to borrow the remaining
outstanding balance from the credit issuer up to a predetermined limit. As a
result of these payment requirement differences, the Accounts have a high
monthly payment rate and balances which turn over rapidly relative to their
charge volume when compared to revolving credit plan products.
26
Another distinction between Accounts and revolving credit plan products is
that Account balances are not subject to monthly finance charges. As described
above, the full Account balance is billed monthly and is due upon receipt of
the billing statement. Cardmembers do not have the option of using their
Accounts to extend payment and to pay a finance charge on the remaining
outstanding balance. Revolving credit plan products, by contrast, do allow
customers to pay a specified minimum portion of an outstanding amount and to
finance the balance at a finance charge rate determined by the credit issuer.
Because Account balances are not assessed finance charges, for the purpose of
providing yield to the Trust, a portion of the Collections received in any Due
Period equal to the product of Collections and the Yield Factor will be
treated as Yield Collections.
THE DESIGNATED ACCOUNTS
General
The Receivables conveyed to the Trust will consist of all Eligible
Receivables existing on the applicable Cut Off Date, or that arise thereafter,
in Eligible Accounts which were selected from the entire portfolio of Accounts
owned by the Account Originators (the "Portfolio") on the basis of criteria
set forth in the Agreement, as applied on the applicable Selection Date and,
in the case of (vii) below, also on the applicable Cut Off Date and designated
for inclusion in the Trust (the "Trust Portfolio"). In order to qualify as an
"Eligible Account," each such Account is or will be as of the applicable
Selection Date, among other things, (i) an American Express Card, American
Express Gold Card, Platinum Card, or other card account owned by an Account
Originator and whose billed balances are payable in full each month; (ii)
payable in United States dollars; (iii) not an Account classified by such
Account Originator as fraudulent or reported stolen or lost; (iv) created or
purchased in accordance with or under underwriting and credit standards no
less stringent than those generally applied by such Account Originator; (v)
not a corporate card account; (vi) not an Account which has been identified by
such Account Originator in its computer files as having a deceased obligor or
having been cancelled due to the obligor's bankruptcy and (vii) not an Account
classified as having been charged-off (each Eligible Account the Receivables
of which have been selected for inclusion in a Trust, a "Designated Account").
Unless otherwise specified in the Related Prospectus Supplement, the
Designated Accounts will include all related accounts that are originated as a
result of (a) the Card with respect to a Designated Account being lost or
stolen or (b) the conversion of a Designated Account into another type of
Eligible Account, in each case which satisfies certain conditions set forth in
the Agreement. Unless otherwise specified in the Related Prospectus
Supplement, the Designated Accounts are and will be selected through a random
selection process applied to Eligible Accounts within the Portfolio or in a
manner not adverse to the interests of the Certificateholders.
Pursuant to the Agreement, the Transferors will have the right (subject to
certain limitations and conditions) and, in certain circumstances, will be
obligated to designate additional Eligible Accounts to be included as
Designated Accounts ("Additional Accounts") and to convey to the Trust all
Receivables of such Additional Accounts, whether such Receivables are then
existing or thereafter created. These accounts must meet the eligibility
criteria set forth in the Agreement, as of the date that the Transferors
designate such accounts as Additional Accounts. As of the Selection Date and
any date as of which Additional Accounts are selected pursuant to the
Agreement (the "Additional Account Selection Date"), the Transferor will
severally represent and warrant to the Trust that the Receivables existing on
the Selection Date or the Additional Account Selection Date, as applicable,
meet the eligibility requirements specified in the Agreement. In addition, on
each day on which any new Receivable is created, the Transferor conveying such
Receivable to the Trust shall be deemed to represent and warrant to the Trust
that each Receivable created on such day meets the eligibility requirements
specified in the Agreement. See "Description of the Certificates--Covenants,
Representations and Warranties."
Notwithstanding any of the foregoing, with respect to Additional Accounts,
Eligible Accounts may include Accounts, the Receivables of which have been
written off, or with respect to which the Servicer believes the Cardmember is
bankrupt or insolvent, in each case as of the related Additional Account
Selection Date and/or Additional Account Cut Off Date; provided that (a) the
balances of all Receivables included in such Accounts are reflected on the
books and records of the Account Originators, and is treated for all purposes
of the Agreement, as "zero", and (b) charging privileges with respect to all
such Accounts have been cancelled in accordance with the Account guidelines
applicable thereto.
27
Further, pursuant to the Agreement, the Transferor will have the right
(subject to certain limitations and conditions discussed herein) to accept
removal of certain Designated Accounts designated by such Transferor from the
Trust ("Removed Accounts") and accept the conveyance of all the Receivables in
the Removed Accounts, whether such Receivables are then existing or thereafter
created. Throughout the term of the Trust, the Designated Accounts from which
the Receivables conveyed to such Trust arise will be the same Designated
Accounts selected by the Transferors on the Cut Off Date plus any Additional
Accounts, but will not include any Removed Accounts. See "Description of the
Certificates--Conveyance of Receivables."
The Prospectus Supplement relating to each Series of Certificates will
provide certain information about the Trust Portfolio as of the date
specified. Such information will include, but not be limited to, the range of
balances of the Accounts, the range of payment status of the Accounts, the
range of ages of the Accounts and the geographic distribution of the Accounts.
THE TRANSFERORS AND RELATED PARTIES
RFC
American Express Receivables Financing Corporation ("RFC" and a
"Transferor") was incorporated under the laws of the State of Delaware on July
30, 1991. All of its outstanding common stock is owned by American Express
Travel Related Services Company, Inc. ("TRS"). TRS is a wholly owned
subsidiary of American Express Company ("American Express"), a publicly-held
corporation engaged principally, through its subsidiaries, in providing travel
related services, investors diversified financial services and international
banking services throughout the world. RFC was organized for the limited
purpose of issuing securities of the type offered hereby, purchasing, holding,
owning and selling receivables and any activities incidental to and necessary
or convenient for the accomplishment of such purposes. Neither TRS, as
stockholder of RFC, nor RFC's board of directors, intends to change the
business purpose of RFC. RFC's executive offices are located at 40 Wall
Street, Mail Stop 10-19-06, New York, New York 10005.
Centurion Bank
American Express Centurion Bank ("Centurion Bank" and a "Transferor") was
incorporated under Utah laws as an industrial loan company in 1987 and
received FDIC insurance in 1989. Its principal office is located at 6985 Union
Park Center, Midvale, Utah 84047. Centurion Bank is a wholly owned subsidiary
of TRS. Centurion Bank is the surviving company of a 1996 merger with an
affiliated bank that was also named "American Express Centurion Bank."
TRS and CREDCO
TRS is a wholly owned subsidiary of American Express. TRS, directly or
through subsidiaries, provides a variety of products and services, including
the Accounts, consumer lending, American Express(Registered) Travelers
Cheques, corporate and consumer travel products and services, magazine
publishing, database marketing and management and insurance. Credco is a
wholly owned subsidiary of TRS primarily engaged in the business of purchasing
certain Cardmember receivables generated by TRS and its subsidiaries.
THE TRUST
The Trust was formed pursuant to the Agreement under the laws of the State
of New York. Since its formation, the Trust has not engaged in any business
activity other than to acquire and hold Receivables and the other assets of
the Trust and proceeds therefrom, issue Series of Certificates and the related
Exchangeable Transferor Certificate, make payments thereon and engage in
related activities. As a consequence, the Trust is not expected to have any
need for, or source of, additional capital resources other than the assets of
the Trust.
28
MATURITY AND PRINCIPAL PAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, for each
Series, following the Revolving Period, Principal Collections are expected to
be distributed to the Certificateholders of such Series or any specified Class
thereof on each specified Distribution Date during the Controlled Amortization
Period or the Rapid Amortization Period, or are expected to be accumulated for
payment to Certificateholders of such Series or any specified Class thereof
during the Controlled Accumulation Period or Early Accumulation Period and
distributed on an Expected Final Payment Date; provided, however, that, if the
Early Amortization Period commences, Principal Collections will be paid to
Certificateholders in the manner described herein and in the related
Prospectus Supplement. The related Prospectus Supplement will specify the date
on which the Controlled Amortization Period, the Rapid Amortization Period or
the Controlled Accumulation Period, as applicable, will commence, the
principal payments expected or available to be received or accumulated during
such Controlled Amortization Period, Rapid Amortization Period or Controlled
Accumulation Period, or on the Expected Final 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 an Early
Amortization or Early Accumulation Period.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued in Series. Each Series will represent an
interest in the Trust other than the interests represented by any other Series
of Certificates issued by the Trust and the Exchangeable Transferor
Certificate. Each Series will be issued pursuant to the Agreement and a Series
Supplement entered into between the Transferors, as the transferors of the
Receivables, TRS (or other specified entity), as Servicer of the Designated
Accounts and the Receivables and the Trustee, substantially in the form filed
as exhibits to the Registration Statement of which this Prospectus is a part.
Pursuant to the Agreement, the Transferors may execute further Series
Supplements thereto between the Transferors and the Trustee in order to issue
additional Series. See "--Exchanges." The Trustee will provide a copy of the
Agreement (without exhibits or schedules), including any Series Supplements,
to Certificateholders without charge upon written request. The Prospectus
Supplement for each Series will describe any provisions of the Agreement filed
as an Exhibit to the Registration Statement. The following summary describes
certain terms common to each Series of Certificates.
General
The Certificates of each Series will represent undivided interests in the
Trust, including the right to receive the applicable Invested Percentage of
all Collections received with respect to the Receivables in the Trust up to
(but not in excess of) amounts required to make payments of interest at the
Certificate Rate and the Invested Amount on the Expected Final Payment Date,
or earlier or later in certain circumstances. The property of the Trust
consists of the Receivables generated under the Designated Accounts and under
any Additional Accounts subsequently designated to the Trust, all funds to be
collected from Cardmembers in respect of such Receivables (including
Recoveries), all of RFC's right, title and interest under the RFC Receivable
Purchase Agreement, all moneys on deposit in the Collection Account, the
Principal Funding Account, if any, and the Interest Funding Account, if any,
with respect to such Series, any other accounts established for the benefit of
any other Series issued by the Trust and any other amounts specified in the
related Prospectus Supplement, benefits of any Enhancement and payments made
in respect of Enhancements issued with respect to any other Series issued by
the Trust.
Each Series of Certificates may consist of one or more Classes, one or more
of which may be Senior Certificates and one or more of which may be
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 Invested Amount 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.
29
For each Series of Certificates, the Transferors or a designated affiliate
of the Transferors initially will own the interest (the "Transferor Interest")
not represented by the Certificates and any other Series of certificates to be
issued. The Transferor Interest will be evidenced by the Exchangeable
Transferor Certificate representing an undivided interest in the Trust,
including the right to a percentage (the "Transferor Percentage"), which may
vary from month to month, of all Collections on the Receivables in the Trust.
The Exchangeable Transferor Certificate may be transferred in whole or in part
subject to certain limitations and conditions contained in the Agreement.
For each Series of Certificates, payments of interest will be made on dates
(each, a "Distribution Date") specified in the related Prospectus Supplement
to Certificateholders in whose names the Certificates were registered (or if
Definitive Certificates are issued, to holders of such Definitive
Certificates) on the record dates specified in the related Prospectus
Supplement (each, a "Record Date"). Interest will be distributed in amounts,
for the periods and on the dates specified in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates during the Revolving Period, the amount
of the Invested Amount in the Trust will remain constant except under certain
limited circumstances. See "--Defaulted Receivables; Recoveries; Adjustments"
and "--Investor Charge-Offs." The amount of Principal Collections in the
Trust, however, will vary each day as new Receivables are created and others
are paid. The amount of the Transferor Interest will fluctuate each day,
therefore, to reflect the changes in the amount of Receivables in the Trust.
When a Series is amortizing, the Invested Amount of such Series will decline
as Principal Collections are distributed to the Certificateholders. As a
result, the Transferor Interest will generally increase each month to reflect
the reductions in the Invested Amount and will also change to reflect the
variations in the amount of Principal Collections. The Transferor Interest in
the Trust may also be reduced as the result of an Exchange. See "--Exchange."
Unless otherwise specified in the related Prospectus Supplement,
Certificates of each Series will initially be represented by certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Transferors, the "Depository") except as set forth
below. Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, beneficial interests in the
Certificates will available for purchase in minimum denominations of $1,000
and integral multiples thereof in book-entry form only. The Transferors have
been informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is
expected to be the holder of record of each Series of Certificates. Unless and
until Definitive Certificates are issued for any Series under the limited
circumstances described herein, no Certificate Owner acquiring an interest in
the Certificates will be entitled to receive a certificate representing such
person's interest in the Certificates. All references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
its participating organizations (the "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
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, Certificateholders may hold their
Certificates through DTC (in the United States) or Clearstream or Euroclear
(in Europe) if they are participants of such systems, or indirectly through
organizations which are participants in such systems.
Cede, as nominee for DTC, will be the registered owner of the global
Certificates.
Clearstream and Euroclear will hold omnibus positions on behalf of the
Clearstream Customers and Euroclear Participants, respectively, participants
through customers' securities accounts in Clearstream's and Euroclear's names
on the books of their respective Depositaries (the "Depositaries") which in
turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. Transfers between DTC participants
will occur in accordance with DTC rules. Transfers between Clearstream
Customers
30
and Euroclear Participants will occur in the ordinary way in accordance with
their applicable rules and procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
Customers 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. Clearstream
Customers and Euroclear Participants may not deliver instructions directly to
the Depositaries.
Because of time-zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a Participant will
be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear or Clearstream participant on such business
day. Cash received in Clearstream or Euroclear as a result of sales of
securities by or through a Clearstream Customers or a Euroclear Participant to
a Participant will be received with value on the DTC settlement date but will
available in the relevant Clearstream or Euroclear cash account only as of the
business day following settlement in DTC. For additional information regarding
clearance and settlement procedures for the Certificates, see Annex I hereto
and for information with respect to tax documentation procedures relating to
the Certificates, see Annex I hereto and "Federal Income Tax Consequences."
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations (who may include the underwriters of any
Series). Indirect access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly (the
"Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions
of principal of and interest on the Certificates from the Trustee, as paying
agent, or its successor in such capacity (the "Paying Agent"), through the
Participants who in turn will receive them from DTC. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, since such payments will be forwarded by the Paying Agent to Cede,
as nominee for DTC. DTC will forward such payments to its Participants which
thereafter will forward them to Indirect Participants or Certificate Owners.
It is anticipated that the only "Certificateholder" will be Cede, as nominee
of DTC. Certificate Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Agreement or any Supplement,
and Certificate Owners will only be permitted to exercise the rights of
Certificateholders indirectly through the Participants who in turn will
exercise the rights of Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal of and interest on
the Certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess Certificates, Certificate Owners
will receive payments and will be able to transfer their interests.
31
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificate Owner to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
DTC has advised the Transferors that it will take any action permitted to be
taken by a Certificateholder under the Agreement or any Supplement only at the
direction of one or more Participants to whose account with DTC the
Certificates are credited. Additionally, DTC has advised the Transferors that
it will take such actions with respect to specified percentages of the
Invested Amount only at the direction of and on behalf of Participants whose
holdings include undivided interests that satisfy such specified percentages.
DTC may take conflicting actions with respect to other undivided interests to
the extent that such actions are taken on behalf of Participants whose
holdings include such undivided interests.
Clearstream Bank, societe anonyme ("Clearstream"), is incorporated under the
laws of Luxembourg. Clearstream holds securities for its customers
("Clearstream Customers") through electronic book-entry changes in accounts of
Clearstream Customers, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream in any of 36
currencies, including United States dollars. Clearstream provides to its
customers, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream also deals with domestic securities markets
in over 30 countries through established depository and custodial
relationships. Clearstream is registered as a bank in Luxembourg, and as such
is subject to regulation by the Commission de Surveillance du Secteur
Financier, which supervises Luxembourg banks. Clearstream's Customers are
world-wide financial institutions including underwriters, securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the underwriters of any Series of Certificates.
Clearstream's U.S. customers are limited to securities brokers and dealers and
banks. Currently, Clearstream has approximately 2,000 customers located in
over 80 countries, including all major European countries, Canada and the
United States. Indirect access to Clearstream is also available to other
institutions that clear through or maintain a custodial relationship with an
account holder of Clearstream. Clearstream has established an electronic
bridge with Morgan Guaranty Trust Company of New York as the operator of the
Euroclear System in Brussels to facilitate settlement of trades between
Clearstream and Euroclear.
Euroclear 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 40 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. The Euroclear System is
operated by Euroclear Bank, S.A./N.V. (the "Euroclear Operator" or
"Euroclear"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator. The Euroclear Operator establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriters of any Series of Certificates. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within the Euroclear System,
withdrawals of securities and cash from the Euroclear System, and receipts of
payments with respect to securities in the Euroclear System. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Certificates held through Clearstream or
Euroclear will be credited to the cash accounts of Clearstream Customers or
Euroclear Participants in accordance with the relevant system's rules and
32
procedures, to the extent received by its Depositary. Such distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Federal Income Tax Consequences." The Clearstream or the
Euroclear Operator, as the case may be, will take any other action permitted
to be taken by a Certificateholder under the Agreement on behalf of a
Clearstream Customer or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to its Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, Clearstream and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
Definitive Certificates
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued in fully registered, certificated
form to Certificate Owners or their nominees (the "Definitive Certificates"),
rather than to DTC or its nominee, only if (i) the Transferors advise the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as depositary with respect to the Certificates, and the
Trustee is, or the Transferors are, unable to locate a qualified successor,
(ii) the Transferors, at their option, elect to terminate the registration of
the Certificates on the book-entry system through DTC, or (iii) after the
occurrence of a servicer default, Certificate Owners representing in the
aggregate more than 50% (or such other percentage specified in the related
Prospectus Supplement) of the Invested Amount advise DTC through Participants
in writing that the continuation of a book-entry system with respect to the
Certificates through any depositary 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 Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the Definitive Certificates representing the Certificates and instructions for
reregistration, the Trust 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 of and interest on the Certificates will be made
by the Paying Agent 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. Distributions will be made by
check mailed to the address of such Holder as it appears on the certificate
register. The final payment on any Certificate (whether Definitive
Certificates or the Certificate registered in the name of DTC's nominee),
however, will be made only upon presentation and surrender of such Certificate
at the office or agency specified in the notice of final distribution to
Certificateholders. The Trustee will provide such notice to registered
Certificateholders not later than the fifth day of the month of such final
distribution.
Definitive Certificates will be transferable and exchangeable at the offices
of the Transfer Agent and Registrar, which 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.
Interest Payments
For each Series of Certificates and Class thereof, interest will accrue from
the relevant Closing Date on the applicable Invested Amount at the applicable
Certificate Rate, which may be a fixed rate, a floating rate or another 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 Yield Collections allocated to the Certificateholders' Interest
during the preceding Due Period or Periods and may be funded from certain
investment earnings on funds held in accounts of the 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 (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 Certificateholders of such Series or Class,
as described in the related Prospectus Supplement. If a Series has more
33
than one Class of Certificates, each such Class may have a separate Interest
Funding Account. The Prospectus Supplement relating to each Series of
Certificates and each Class thereof will describe the amounts and sources of
interest payments to be made, the Certificate Rate, and, 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.
Principal Payments
Unless otherwise specified in the related Prospectus Supplement, during the
Revolving Period for each Series of Certificates (which begins on the Closing
Date relating to such Series 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. During the Controlled Amortization Period,
Rapid Amortization Period or Accumulation Period, as applicable, which will be
scheduled to begin on the date specified in the related Prospectus Supplement,
and during the Early Amortization or Early Accumulation Period, which will
begin upon the occurrence of a Pay Out Event, principal will be paid to the
Certificateholders in the amounts and on Distribution Dates specified in the
related Prospectus Supplement or will be accumulated in a Principal Funding
Account for later distribution to Certificateholders on the Expected Final
Payment Date in the amounts specified in the related Prospectus Supplement.
Principal payments for any Series or Class thereof will be funded from
Principal Collections received during the related Due Period or Periods as
specified in the related Prospectus Supplement and allocated to such Series or
Class 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. Upon satisfaction of certain conditions set forth in the
related Prospectus Supplement, the Servicer may elect to postpone the
commencement of the Controlled Accumulation Period, if any, and extend the
length of the Revolving Period.
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 the Controlled
Accumulation Period, such Series of Certificates or Class thereof may be
subject to a principal maturity guaranty or other similar arrangement
specified in the related Prospectus Supplement.
Conveyance of Receivables
The Transferors have transferred and assigned to the Trustee, all of their
respective right, title and interest in and to the Receivables in the related
Designated Accounts and all Receivables thereafter created in such Accounts
and the proceeds of all the foregoing. Credco has sold or will sell to TRS all
its right, title and interest in and to all the Receivables owned by it and
existing as of the applicable Cut Off Date under the Designated Accounts.
Pursuant to the Receivable Purchase Agreement, TRS sold to RFC all of TRS'
right, title and interest in and to the Receivables existing under the related
Designated Accounts and all Receivables arising under such Accounts from time
to time in the future.
In connection with the sale of the Receivables owned by Credco and existing
as of the applicable Cut Off Date to TRS and the sale of the Receivables by
TRS to RFC and the transfer of the Receivables by the Transferors to the
Trust, and in connection with each sale of Receivables by Credco to TRS, by
TRS to RFC and each transfer of such Receivables to the Trust, TRS for itself
and as servicer for Credco has indicated and will indicate, as applicable, in
its records, including any computer files, that such Receivables have been
sold, as appropriate, to RFC and then transferred to the Trust and each
Transferor has indicated and will indicate, as applicable, in its records,
including any computer files, that the Receivables have been transferred by
such Transferor to the Trust. In addition, the Transferors provided, and will
provide, to the Trustee computer files or microfiche lists containing a true
and complete list showing for each related Designated Account, as of the
applicable Cut Off Date and for each Additional Account as of each Additional
Account Cut Off Date, (i) its account number and (ii) the amount of
Receivables in such Designated Account. TRS, as initial Servicer, will retain
and will not deliver to the Trustee any other records or agreements relating
to the Designated Accounts or the Receivables. Except as set forth above, the
records and agreements relating to the Designated Accounts and
34
the Receivables have not been and will not be segregated from those relating
to other charge card accounts and receivables and neither the computer files
nor the physical documentation relating to the Designated Accounts or
Receivables has been or will be stamped or marked to reflect the transfer of
Receivables to the Trust. The Trustee will have reasonable access to such
records and agreements as required by applicable law or to enforce the rights
of the Certificateholders. Credco and TRS have filed one or more UCC-1
financing statements in accordance with the UCC to perfect TRS' and the
Transferors' respective interests in the Receivables. Each Transferor, in
turn, has filed one or more UCC-1 financing statements in accordance with
applicable law to perfect the Trust's interest in the Receivables. See "Risk
Factors" and "Certain Legal Aspects of the Receivables--Transfer of
Receivables."
Exchanges
Unless otherwise specified in the related Prospectus Supplement, for each
Series of Certificates, the Agreement will provide for the 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
Exchangeable Transferor Certificate, a certificate which evidences the
Transferor Interest, which will initially be held by the Transferors or a
designated affiliate of the Transferors and will be transferable only as
provided in the Agreement. The Agreement will also provide that, pursuant to
any one or more Series Supplements, the Transferors may tender the
Exchangeable Transferor Certificate, or the Exchangeable Transferor
Certificate and the Certificates evidencing any Series of certificates, to the
Trustee in exchange for one or more newly issued Series (which may include
Series offered pursuant to this Prospectus) and a reissued Exchangeable
Transferor Certificate. Pursuant to the Agreement, the holder of the
Exchangeable Transferor Certificate may define, with respect to any newly
issued Series: (i) its name or designation, (ii) its initial principal amount
(or method for calculating such amount), (iii) its certificate rate (or
formula for the determination thereof), (iv) the interest payment date or
dates and the date or dates from which interest shall accrue, (v) the method
for allocating collections to Certificateholders, (vi) the names of any
accounts to be used by such Series and the terms governing the operation of
any such accounts, (vii) the percentage used to calculate monthly servicing
fees, (viii) the Minimum Transferor Percentage, (ix) the minimum amount of
Trust Principal Component required to be maintained through the designation by
the Transferors of Additional Accounts, (x) the issuer and terms of any
Enhancement with respect thereto, (xi) the base rate for such Series, if
applicable, (xii) the terms on which the Certificates of such Series may be
repurchased at the Transferors' option or remarketed to other investors,
(xiii) the series termination date, (xiv) any deposit into any account
maintained for the benefit of Certificateholders, (xv) the number of classes
of such Series, and if more than one class, the rights and priorities of each
such class, (xvi) the extent to which the certificates of such Series will be
issuable in temporary or permanent global form (and, in such case, the
depositary for such global certificate or certificates, the terms and
conditions, if any, upon which such global certificate may be exchanged, in
whole or in part, for definitive certificates, and the manner in which any
interest payable on a temporary or global certificate will be paid), (xvii)
whether the certificates of such Series may be issued in bearer form and any
limitations imposed thereon, (xviii) the priority of any Series with respect
to any other Series, (xix) the rights of the holder of the Exchangeable
Transferor Certificate that have been transferred to the holders of such
Series, (xx) whether such Series will be an Excess Allocation Series, and
(xxi) any other relevant terms (all such terms, the "Principal Terms" of such
Series). Upon the issuance of an additional Series of Certificates, none of
the Transferors, the Servicer, the Trustee or the 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
Transferors will deliver to the Trustee written confirmation that the Exchange
will not result in the applicable Rating Agency reducing or withdrawing its
rating of any outstanding Series previously issued by the Trust. The
Transferors may offer any Series to the public or other investors under a
Disclosure Document in offerings pursuant to this Prospectus or in
transactions either registered under the Act or exempt from registration
thereunder, directly, through one or more underwriters or placement agents, in
fixed-price offerings or in negotiated transactions or otherwise.
Unless otherwise specified in the related Prospectus Supplement, the
Transferors may perform Exchanges and define Principal Terms such that each
Series has a period during which amortization 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 revolving periods while other Series are not. Thus,
certain Series may not be amortizing, while other Series are amortizing. A
Series may have the benefits of a form
35
of Enhancement issued by issuers different from the issuers of the form of
Enhancement with respect to any other Series. Under the Agreement, the Trustee
shall hold any such Enhancement only on behalf of the Series with respect to
which such Enhancement relates. Likewise, with respect to each such
Enhancement, the Transferors may deliver a different form of Enhancement
agreement. The holder of the Exchangeable Transferor Certificate may specify
different certificate rates and monthly servicing fees with respect to each
Series. Yield Collections not used to pay interest on the certificates, the
monthly servicing fee, the investor default amount or investor charge-offs
with respect to any Series may be allocated as provided in the form of the
Enhancement agreement for such Series, if applicable. The holder of the
Exchangeable Transferor Certificate will also have the option under the
Agreement to vary between Series the terms upon which a Series (or a
particular Class within such Series) may be repurchased at the Transferors'
option or remarketed to other investors. Additionally, certain Series may be
subordinated to other Series, or Classes within a Series may have different
priorities. There will be no limit to the number of Exchanges that the
Transferor may perform under the Agreement. The Trust will terminate only as
provided in the Agreement.
Unless otherwise specified in the related Prospectus Supplement, an Exchange
may only occur upon the satisfaction of certain conditions provided in the
Agreement. Under the Agreement, the Transferors may perform an Exchange by
notifying the Trustee, at least three business days in advance of the date
upon which the Exchange is to occur. Under the Agreement, the notice will
state the designation of any Series to be issued on the date of the Exchange
and, with respect to each such Series: (i) its initial invested amount (or
method for calculating such amount) and (ii) its certificate rate (or the
method for allocating interest payments or other cash flow to such Series).
The Agreement provides that, on the date of the Exchange, the Trustee will
issue any such Series only upon delivery to it of the following: (i) a
Supplement in form satisfactory to the Trustee signed by the Transferors and
specifying the Principal Terms of such Series, (ii) the form of Enhancement
and the Enhancement agreement, if any, with respect thereto executed by the
Transferors and the provider of the form of Enhancement, (iii) an opinion of
counsel to the effect that certificates of such Series will be characterized
either as indebtedness or an interest in a partnership under existing law for
Federal income tax purposes and that the issuance of such Series will not
affect the Federal income tax characterization of any outstanding Series of
the Trust, (iv) written confirmation from the applicable Rating Agency that
the Exchange will not result in such Rating Agency reducing or withdrawing its
rating on any outstanding Series and (v) the existing Exchangeable Transferor
Certificate and the applicable certificates of the Series to be exchanged, if
applicable. Upon satisfaction of such conditions, the Trustee will cancel the
existing Exchangeable Transferor Certificate and the certificates of the
exchanged Series, if applicable, and issue the new Series and new Exchangeable
Transferor Certificate.
Covenants, Representations and Warranties
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, each Transferor has severally covenanted in the Agreement to
the Trustee for the benefit of all Certificateholders of all Series which from
time to time may have an interest in the Trust that, as to the Receivables
conveyed to the Trust by it, such Transferor will accept the transfer of any
Receivable which is charged-off as uncollectible or any Receivable the
proceeds of which are unavailable to the Trust, if (i) such Receivable is not
an Eligible Receivable, (ii) such Receivable was not conveyed to the Trust
free and clear of all liens (except such liens as may be permitted by the
Agreement) or in compliance in all material respects with all requirements of
law, (iii) all material information with respect to the Receivables, and the
Designated Accounts related thereto, in the list provided to the Trustee was
not true and correct in all material respects, (iv) such Transferor did not
obtain all consents, licenses, approvals or authorizations required in
connection with the conveyance of the Receivables to the Trust, or (v) on the
applicable Closing Date and on the applicable Additional Account Closing Date
with respect to Additional Accounts, the computer file or list of Designated
Accounts or Additional Accounts, as the case may be, provided by such
Transferor to the Trustee was not an accurate and complete listing of all such
Accounts in all material respects as of the related Cut Off Date or the
Additional Account Cut Off Date, as applicable, or the information contained
therein with respect to the identity of such Accounts and the Receivables
existing thereunder was not true and correct in all material respects as to
the related Cut Off Date or the Additional Account Cut Off Date, as
applicable, unless cured within 60 days or any longer period agreed upon by
the Trustee (not to exceed an additional 60 days) or within any other period
of time as specified in the related Prospectus Supplement, from the earlier to
occur of the discovery of any such event by such Transferor or the
36
Servicer, or receipt by such Transferor or the Servicer of written notice of
any such event given by the Trustee. Additionally, each Transferor covenants
and will covenant in each Agreement to accept, under certain conditions, the
transfer of Receivables which are subject to certain specified liens
immediately upon the discovery of such liens.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, a Transferor shall accept the transfer of any Receivable as
described above (an "Ineligible Receivable") by paying to the Servicer within
two business days for deposit in the Collection Account an amount equal to the
balance of such Ineligible Receivable. Any deposit into the Collection Account
in connection with the reassignment of an Ineligible Receivable shall be
deemed a payment in full of the Ineligible Receivable and will be treated
under the Agreement in the same manner as are payments received by the
Servicer from Cardmembers under the Designated Accounts. Any amounts so paid
by a Transferor shall be allocated in respect of Yield Collections and
Principal Collections as provided in the Agreement. Notwithstanding the
foregoing, no such reassignment shall be considered to occur unless such
deposit is made.
The obligation of a Transferor to accept reassignment of any Ineligible
Receivable as described above will be the sole remedy with respect to such
Receivable available to Certificateholders of all Series outstanding or the
Trustee on behalf of Certificateholders of all Series outstanding. Pursuant to
the Receivable Purchase Agreement, TRS has made covenants with respect to
Ineligible Receivables substantially similar to those described above with
respect to the Transferors. As a result, in the event that a Receivable sold
to RFC by TRS becomes an Ineligible Receivable, TRS will be required to
repurchase such Receivable from RFC so as to enable RFC to repurchase such
Receivable from the Trust.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, each Transferor has represented and warranted in the
Agreement to the Trustee for the benefit of all holders of all Series which
from time to time may have an interest in the Trust that (i) such Transferor
is duly organized and validly existing in good standing under the laws of the
jurisdiction of its organization, has the full corporate power, authority and
legal right to own its properties and conduct its business as such properties
are presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under the Agreement and, with respect to
RFC only, the RFC Receivable Purchase Agreement and to execute and deliver to
the Trustee the Certificates pursuant to the Agreement, (ii) the Agreement
and, with respect to RFC only, the RFC Receivable Purchase Agreement
constitute legal, valid, binding and enforceable obligations of such
Transferor, and (iii) the Agreement constitutes a valid transfer to the Trust
of all right, title and interest of such Transferor in and to the Receivables
transferred to the Trust by such Transferor, whether then existing or
thereafter created in the Designated Accounts, and the proceeds thereof (which
amount shall include amounts in any of the accounts established for the
benefit of the Certificateholders) or the grant of a first priority perfected
security interest in such Receivables and with certain exceptions made for
certain limited time periods the proceeds thereof (which amount shall include
amounts in any of the accounts established for the benefit of the
Certificateholders), which is effective as to each Receivable upon the
transfer thereof to the Trust or upon its creation, as the case may be, and,
with respect to RFC only, that the RFC Receivable Purchase Agreement
constitutes a valid transfer to RFC of all right, title and interest of TRS or
the applicable seller in and to the Receivables, whether then existing or
thereafter created in the applicable Designated Accounts, and the proceeds
thereof. In the event that (x) any of the representations and warranties
described in clauses (i) through (iii) above are not true and correct or (y) a
material amount of Receivables are not Eligible Receivables, and in either
case such event has a material adverse effect on the interests of holders of
the certificates of all Series which have an interest in the Trust, either the
Trustee or the holders of certificates evidencing undivided interests in such
Trust aggregating more than 50% of the outstanding invested amount of all such
Series, by written notice to the Transferors (and to the Trustee and the
Servicer, if given by the Certificateholders), may direct the Transferors to
accept reassignment of all Receivables within 60 days of such notice or any
longer period agreed upon by the Trustee (not to exceed an additional 60
days). The Transferors will be obligated to accept reassignment of all such
Receivables on a Distribution Date occurring within such applicable period,
unless the representations and warranties shall then be true and correct in
all material respects or there shall no longer be a material amount of such
Receivables which are not Eligible Receivables, as the case may be. The price
for such transfer of Receivables shall be equal to the sum of the aggregate
invested amounts of all such Series on the Record Date related to the
applicable payment date on which the transfer is scheduled to be made (less
the aggregate principal amount on deposit in any principal funding account)
plus an amount equal to all interest accrued but unpaid on all such Series at
the applicable certificate
37
rates through the end of the interest accrual periods of such Series. The
payment of such amount into the Collection Account in immediately available
funds will be considered a prepayment in full of all such Receivables and will
be paid in full to the Certificateholders. The obligations described above
shall be the sole remedies respecting the foregoing representations,
warranties and events available to the Trustee or the Certificateholders.
Pursuant to the RFC Receivable Purchase Agreement, TRS has made
representations and warranties with respect to the Receivables sold by it to
RFC pursuant to the RFC Receivable Purchase Agreement substantially similar to
those described above with respect to the Transferors. As a result, in the
event that RFC breaches a representation and warranty described above with
respect to a Receivable sold to RFC by TRS or such seller, TRS or such seller
will be required to repurchase from RFC the Receivables retransferred to RFC
for an amount of cash equal to the amount RFC is required to deposit under the
Agreement in connection with such retransfer.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates an "Eligible Receivable" will be
defined to mean each Receivable (i) which has arisen under an Eligible
Account, (ii) which was created in compliance with all requirements of law and
pursuant to a Cardmember agreement which complies with all requirements of law
in either case the failure to comply with which would have a material adverse
effect upon Certificateholders, (iii) with respect to which all material
consents, licenses, approvals or authorizations of, or registrations with, any
governmental authority required to be obtained or given by an Account
Originator in connection with the creation of such Receivable or the
execution, delivery and performance by such Account Originator of the related
Cardmember agreement have been duly obtained or given and are in full force
and effect as of such date of creation, (iv) as to which at the time of the
transfer of such Receivable to the Trust, the Trust will have good and
marketable title, free and clear of all liens, encumbrances, charges and
security interests (except those permitted by the Agreement), (v) which has
been the subject of either a valid transfer and assignment from a Transferor
to the Trust of all of such Transferor's right, title and interest therein or
the grant of a first priority perfected security interest therein (and in the
proceeds thereof), effective until the termination of the Trust, (vi) which
will at all times be the legal, valid and binding payment obligation of the
Cardmember thereof enforceable against such Cardmember in accordance with its
terms, subject to certain bankruptcy and equity related exceptions, (vii)
which constitutes either an "account" or a "general intangible" under and as
defined in Article 9 of the UCC as then in effect in, with respect to any
Receivable conveyed to the Trust by RFC, the State of New York or, with
respect to any Receivable conveyed to the Trust by Centurion Bank, the State
of Utah, (viii) which, at the time of its transfer to the Trust, has not been
waived or modified except in accordance with the policies and procedures of
the relevant Account Originator relating to the operation of its consumer
charge card business, (ix) which is not subject to any right of rescission,
setoff, counterclaim or other defense (including the defense of usury), other
than certain bankruptcy and equity related defenses, (x) as to which the
relevant Account Originator and the Transferor have satisfied all obligations
to be fulfilled at the time it is transferred to the Trust and (xi) as to
which the relevant Account Originator and the Transferor have done nothing, at
the time of its transfer to the Trust, to impair the rights of the Trust or
Certificateholders therein.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, it will not be required or anticipated that the Trustee will
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 Transferors'
representations and warranties or for any other purpose. In addition, it is
not anticipated or required that the Trustee will make any initial or periodic
general examination of the Servicer for the purpose of establishing the
compliance by the Servicer with its representations or warranties or the
performance by the Servicer of its obligations under the Agreement for any
other purpose. The Servicer, however, will be required to deliver to the
Trustee on or before March 1 (or such other date specified in the related
Prospectus Supplement) of each year 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 such Trust.
Addition of Accounts
Subject to the conditions set forth in the second succeeding sentence, the
Transferors will have the right to designate from time to time Additional
Accounts to be included as Designated Accounts and to convey to the Trust on
designated dates all Receivables in such Additional Accounts (each such date,
an "Additional Account Closing Date"), whether such Receivables are then
existing or thereafter created. In addition, the Transferors will be required
to designate the Receivables of Additional Accounts (to the extent available)
and to transfer the
38
Receivables in such Additional Accounts to the Trust if, as of the end of any
two consecutive Due Periods, the Trust Principal Component minus the sum of
the invested amounts (or adjusted invested amounts) for all Series having an
interest in the Trust and plus the principal amount on deposit in any
Principal Funding Account and the Special Funding Account (the "Transferor
Amount") as a percentage of the Trust Principal Component (reduced, for the
purpose of this calculation, by the Privileged Assets Calculated Amount for
the prior Due Period) is less than 15% (the "Minimum Transferor Percentage")
or under the circumstances and in the amounts specified in the related
Prospectus Supplement. The Transferors will in each case convey to the Trusts
all Receivables in such Additional Accounts, whether such Receivables are then
existing or thereafter created, subject to the following conditions, among
others: (i) each such Additional Account at the time of its selection must be
an Eligible Account; (ii) the selection of the Additional Accounts by each
Transferor will be made in a manner which it reasonably believes will not
materially adversely affect the Certificateholders' interests; and (iii) the
Transferors shall have delivered prior written notice of the addition to the
Rating Agency, the Trustee and the Servicer, and, if such Additional Accounts
are being designated at the option of the Transferors, the Transferors shall
have been notified in writing that such addition will not result in a
reduction or withdrawal of the rating of any Series of Certificates as
described under "Risk Factors--Payments and Maturity".
Although each Additional Account must satisfy certain criteria set forth in
the Agreement at the time of its selection, it is possible that Additional
Accounts will not be of the same credit quality as the initial Designated
Accounts.
Removal of Designated Accounts
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, subject to the conditions set forth in the next succeeding
sentence, on each Determination Date with respect to which the Transferor
Amount as a percentage of the Trust Principal Component (reduced, for the
purpose of this calculation, by the Privileged Assets Calculated Amount for
the prior Due Period) exceeds 20% at the end of any Due Period or under the
circumstances and in the amounts specified in the related Prospectus
Supplement, the Transferors will have the right to accept removal from the
Trust of certain Designated Accounts designated by the Transferors (the
"Removed Accounts") and accept the conveyance of all the Receivables in the
Removed Accounts, without notice to the Certificateholders. The Transferors
may, in their sole discretion, accept such offer in an aggregate amount equal
to an amount not greater than the excess of the Transferor Amount over 15% of
the Trust Principal Component (reduced as aforesaid) as of the end of the
related Due Period, unless otherwise specified in the related Prospectus
Supplement. The Transferors will be permitted to designate and require
reassignment to them of the Receivables from Removed Accounts only upon
satisfaction of the following conditions: (i) the Transferors shall have
delivered to the Trustee for execution a written instrument of reassignment
and a computer file or microfiche list containing a true and complete list of
all Designated Accounts after such removal, the Designated Accounts to be
identified by account number and aggregate amount of Receivables; (ii) the
Transferors shall represent and warrant that no selection procedure used by
the Transferors which is adverse to the interests of the Certificateholders or
any provider of Enhancements was utilized in selecting the Removed Accounts;
(iii) the removal of any Receivables of any Removed Accounts shall not, in the
reasonable belief of the Transferors, cause a Pay Out Event to occur; (iv) the
Transferors shall have delivered prior written notice of the removal to each
Rating Agency which has rated any outstanding Series and prior to the date on
which such Receivables are to be removed shall have received notice from each
Rating Agency that such removal will not cause the reduction or withdrawal of
its rating of any Series of certificates; and (v) the Transferors shall have
delivered to the Trustee and each Rating Agency officers' certificates
confirming the items set forth in clauses (i) through (iv) above.
Collection Account
The Trustee will establish and maintain or cause to be established and
maintained, in the name of the Trustee, on behalf of the Trust, a segregated
trust account (the "Collection Account") for the benefit of the
Certificateholders of all Series, including any Series offered hereby, with an
Eligible Institution. An "Eligible Institution" means a depositary
institution, which may include the Trustee, organized under the laws of the
United States or any one of the States thereof including the District of
Columbia (or any domestic branches of foreign banks), which at all times has a
short-term unsecured debt or certificate of deposit rating of at least A-1+
and P-1 by the applicable Rating Agency; provided, however, that no such
rating shall be required of an
39
institution which shall have corporate trust powers and which maintains the
Collection Account, any principal funding account, any interest funding
account or any other account maintained for the benefit of Certificateholders
as a fully segregated trust account with the trust department of such
institution. Funds in the Collection Account may be invested, at the direction
of the Servicer, in (i) obligations fully guaranteed by the United States of
America or its agencies, (ii) time deposits, certificates of deposit or
banker's acceptances of certain depository institutions or trust companies
having the highest rating from the applicable Rating Agency, (iii) commercial
paper having, at the time of the Trust's investment, a rating in the highest
rating category from the applicable Rating Agency, (iv) money market funds
which have a rating in the highest rating category from the applicable Rating
Agency, (v) Eurodollar time deposits having, at the time of the Trust's
investment or contractual commitment to invest therein, a rating in the
highest rating category from the applicable Rating Agency, (vi) repurchase
agreements involving certain of the above-listed investments so long as the
other party thereto has at the time of the Trust's investment therein, a
rating in the highest rating category from the applicable Rating Agency and
(vii) any other investments as may be approved in writing by the applicable
Rating Agency prior to the Trust's investment therein (collectively, the
"Eligible Investments"). Any such investment shall be held to maturity. Any
earnings (net of losses and investment expenses) on funds in the Collection
Account shall be paid monthly to the Transferors unless a Pay Out Event
occurs, in which event such funds will remain on deposit in the Collection
Account. The Servicer will have the revocable power to withdraw funds from the
Collection Account and to instruct the Trustee to make withdrawals and
payments from the Collection Account for the purpose of carrying out the
Servicer's or the Trustee's duties under the Agreement. So long as no Servicer
Default has occurred and the Servicer maintains certain short-term credit
ratings, or obtains a guaranty or written confirmation of the ratings on the
Certificates from each Rating Agency, the Servicer need not deposit funds into
the Collection Account until the business day preceding the following
Distribution Date and may use such funds for its own purposes. See "--
Allocation of Collections; Deposits in Collection Account."
Other Trust Accounts
The Agreement provides that the Trustee shall have the power to establish
series accounts in accordance with the terms of Series Supplements, including
an Interest Funding Account, a Principal Funding Account or such other account
specified in the related Series Supplement, each of which series account shall
be held for the benefit of the Certificateholders of the related Series and
for the purposes set forth in the related Prospectus Supplement.
Allocation Percentages
Pursuant to the Agreement, during each Due Period the Servicer will
allocate, among the Certificateholders' Interest of all Series of Certificates
issued by the Trust (and between each Class of each Series) and the Transferor
Interest, all Yield Collections, all Principal Collections and the amount of
all Defaulted Receivables. The Servicer will make each allocation by reference
to the applicable Invested Percentage of each Series and the Transferor
Percentage in each case. The Prospectus Supplement relating to a Series will
specify the Invested Percentage with respect to Yield Collections, Principal
Collections and Defaulted Receivables 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 among the classes
of such Series.
The Transferor Percentage will, in each case, be equal to 100% minus the
aggregate Invested Percentage for all Series then outstanding.
Allocation of Collections; Deposits in Collection Account
Unless otherwise specified in the related Prospectus Supplement, on the date
of processing (generally the first business day after a record of a
transaction is first output in written form), the Servicer will deposit
Collections on the Receivables and payments made by the Transferor in respect
of Ineligible Receivables allocable to the Certificateholders' Interest into
the Collection Account except as described below. So long as a Servicer
Default has not occurred, TRS or an affiliate of TRS is the Servicer and the
Servicer (i) maintains a short-term credit rating (which may be an implied
rating) of at least A-1 and P-1 by the applicable Rating Agency (the Servicer
currently satisfies this rating requirement; however, on September 20, 2001,
S&P placed the rating of the Servicer on negative outlook), or (ii) obtains a
guarantee pursuant to the Agreement with respect to the
40
Servicer's deposit and payment obligations thereunder so long as the guarantor
maintains a short-term credit rating (which may be an implied rating) of at
least A-1+ and P-1 by the applicable Rating Agency, or (iii) obtains a written
notification from each Rating Agency to the effect that such Rating Agency
does not intend to downgrade or withdraw its then current rating of any
outstanding Series of Certificates despite the Servicer's inability to satisfy
the rating requirement specified in clause (i), and for the two business day
period following any reduction of either such rating or failure to satisfy the
conditions of either clause (ii) or (iii), the Servicer need not deposit
Collections and payments made by the Transferors in respect of Ineligible
Receivables allocable to the Certificateholders' Interest into the Collection
Account on the day indicated in the preceding sentence but may use for its own
benefit all such Collections and payments until the business day preceding the
Distribution Date, at which time the Servicer must deposit such amounts (net
of the Monthly Servicing Fee and net of any amounts to be distributed to the
Transferors) into the Collection Account. Until such Collections and payments
are deposited in the Collection Account, such amounts will not be segregated
from the assets of the Servicer, and the proceeds of any short-term investment
of such proceeds will accrue to the Servicer. Although S&P and Moody's have
assigned short-term debt ratings to the Servicer of A-1 and P-1 (however, on
September 20, 2001, S&P placed the rating of the Servicer on negative
outlook), respectively, while the Servicer holds Collections and payments made
by the Transferors in respect of Ineligible Receivables, the
Certificateholders will be subject to risk of loss, including risk resulting
from the bankruptcy or insolvency of the Servicer. The Servicer will pay no
fee to the Trust or the Certificateholders for use of Collections and payments
made by the Transferors in respect of Ineligible Receivables. See "--Risk
Factors--Certain Legal Aspects." Collections on the Receivables allocable to
the Transferor Interest will be remitted by the Servicer on each day to the
Transferors.
Unless otherwise specified in the related Prospectus Supplement, if the
Servicer's short-term credit rating is reduced below A-1 by S&P (the Servicer
currently satisfies this rating requirement; however, on September 20, 2001,
S&P placed the rating of the Servicer on negative outlook), the Trustee,
within five business days, shall deliver to the banks maintaining accounts
into which Cardmember payments on the Accounts are deposited certain lockbox
letters executed by TRS relating to control of funds in such accounts unless
other arrangements satisfactory to S&P are put into place.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, if the Servicer is required to deposit Collections on the
Receivables for the related Due Period allocable to the Certificateholders'
Interest into the Collection Account on the date of processing: (i) during the
Revolving Period, an amount equal to the applicable Invested Percentage of
Principal Collections received each day will first be deposited into the
Collection Account as Excess Principal Collections to the extent required to
be distributed to other Series on the next succeeding Distribution Date and
then will be remitted by the Servicer to the Transferors on the date of
processing unless such Principal Collections would reduce the Transferor
Amount as a percentage of the Trust Principal Component (reduced by the
Privileged Assets Calculated Amount) below 3% (after giving effect to any new
Receivables transferred to the Trust) in which case such amount will be
deposited in the Collection Account as Undistributed Principal Collections,
and an amount equal to the applicable Invested Percentage of Yield Collections
received each day will be deposited by the Servicer into the Collection
Account on the date of processing, (ii) during the Controlled Amortization
Period or the Rapid Amortization Period, as applicable, an amount equal to the
applicable Invested Percentage of Principal Collections received each day will
be deposited by the Servicer into the Collection Account on the date of
processing until such deposits equal an amount specified in the related
Prospectus Supplement; thereafter the applicable Invested Percentage of
Principal Collections received each day will first be deposited into the
Collection Account as Excess Principal Collections to the extent required to
be distributed to other Series on the next succeeding Distribution Date, then
will be remitted by the Servicer to the Transferors on the date of processing
unless such Principal Collections would reduce the Transferor Amount as a
percentage of the Trust Principal Component (reduced as aforesaid) below 3%
(after giving effect to any new Receivables transferred to the Trust), in
which case such amount will be deposited into the Collection Account as
Undistributed Principal Collections and the applicable Invested Percentage of
Yield Collections received each day will be deposited by the Servicer into the
Collection Account on the date of processing, and (iii) during an Early
Amortization Period, all Principal Collections received each day allocable to
the Certificateholders' Interest will be deposited by the Servicer into the
Collection Account on the date of processing until such deposits equal the
amount of principal permitted to be paid to Certificateholders on each Special
Payment Date; thereafter such Principal Collections will be deposited into the
Collection Account as
41
Excess Principal Collections and the applicable Invested Percentage of Yield
Collections received each day will be deposited by the Servicer into the
Collection Account on the date of processing.
Principal Collections For All Series
If so specified in the related Prospectus Supplement, to the extent that
Principal Collections and certain other amounts that are allocated to the
Certificateholders' Interest of any Series are not needed to make payments or
deposits with respect to such Series, such collections will constitute Excess
Principal Collections and will be applied to cover principal payments due to
or for the benefit of Certificateholders of other Series. Any such
reallocation will not result in a reduction in the Invested Amount of the
Series to which such collections were initially allocated.
Application of Collections
Any Principal Collections not distributed to the Transferors because such
Principal Collections would reduce the Transferor Amount as a percentage of
the Trust Principal Component (reduced, for the purpose of such calculation,
by the Privileged Assets Calculated Amount) below 3% (after giving effect to
any new Receivables transferred to the Trust for the related Due Period)
("Undistributed Principal Collections") will be deposited to the Collection
Account until distributable to the holders of the Exchangeable Transferor
Certificate or, if the Controlled Accumulation Period, Early Accumulation
Period or the Early Amortization Period has commenced, on each Distribution
Date all or a portion thereof will be treated as specified in the related
Prospectus Supplement. Any proceeds from any repurchase of the Certificates
occurring in connection with a Service Transfer and the proceeds of any sale,
disposition or liquidation of Receivables following the occurrence of a Pay
Out Event as a result of the bankruptcy or insolvency of TRS or a Transferor
or in connection with the Series Termination Date will also be deposited into
the Collection Account immediately upon receipt and will be allocated as
Principal Collections or Yield Collections, as applicable.
Distributions From The Collection Account
Unless otherwise specified in the related Prospectus Supplement, the
Servicer shall apply or shall cause the Trustee to apply the funds on deposit
in the Collection Account with respect to each Distribution Date to make the
following distributions and allocations for such Distribution Date:
(a) An amount equal to the applicable Invested Percentage of Yield
Collections deposited in the Collection Account for the Due Period
immediately preceding such Distribution Date will be allocated in the
priority described in the related Prospectus Supplement.
(b) For each Distribution Date with respect to any Accumulation Period or
any Amortization Period and thereafter, the remaining funds on deposit
in the Collection Account with respect to such Distribution Date will
be allocated in the priority described 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.
Sharing of Excess Yield Collections Among Excess Allocation Series
Any Series may be designated as an Excess Allocation Series. Yield
Collections and certain other amounts allocable to the Certificateholders'
Interest of any Excess Allocation Series in excess of the amounts necessary to
make required payments with respect to such Series (including payments to the
provider of any Enhancement for such Series) that are payable out of Yield
Collections (any such excess being referred to herein as "Excess Finance
Charge Collections") may be applied to cover any shortfalls with respect to
amounts payable from Yield Collections allocable to any other Excess
Allocation Series pro rata based upon the amount of the shortfall, if any,
with respect to each other Excess Allocation Series; provided, however, that
the sharing of Excess Yield Collections among Excess Allocation Series will
cease if the Transferors shall deliver to the Trustee a certificate of an
authorized representative to the effect that, in the reasonable belief of the
Transferors, the continued sharing of Excess Yield Collections among Excess
Allocation Series would have adverse regulatory implications with respect to
one or both of the Transferors or TRS. Following the delivery by the
Transferors of any such certificate to the Trustee there will not be any
further sharing of Excess Yield Collections among such Excess Allocation
Series. In all cases, any Excess Yield Collections remaining after covering
shortfalls with respect to all
42
outstanding Excess Allocation Series will be paid to the holders of the
Exchangeable Transferor Certificate. While any Series may be designated as an
Excess Allocation Series, there can be no assurance that for any Excess
Allocation Series (a) any other Series will be designated as an Excess
Allocation Series, (b) for any Due Period there will be any Excess Yield
Collections from any other Excess Allocation Series, (c) any agreement
relating to the Enhancement for another Excess Allocation Series will not be
amended to increase payments to the providers of such Enhancement, thereby
decreasing the amount of Excess Yield Collections available from such other
Series or (d) the Transferors will not at any time deliver a certificate as
described above. While the Transferors believe that, based upon applicable
rules and regulations as currently in effect, the sharing of Excess Yield
Collections among Excess Allocation Series will not have adverse regulatory
implications for either of them or TRS, there can be no assurance that this
will continue to be true in the future.
Special Funding Account
If on any date the Transferor Amount, expressed a percentage of the Trust
Principal Component (reduced by the Privileged Assets Calculated Amount), is
not maintained at the Minimum Transferor Percentage, the Servicer may elect
not to distribute to the holders of the Transferor Certificates any
collections of Excess Principal Collections allocable to a Series or a Group
that otherwise would be distributed to such holders, but may deposit such
funds in the Special Funding Account. Funds on deposit in the Special Funding
Account may be withdrawn and paid to the holders of the Transferor
Certificates or pay amounts to other Series on any Distribution Date to the
extent that, after giving effect to such payment, the Transferor Amount
expressed as a percentage of the Trust Principal Component (reduced by the
Privileged Assets Calculated Amount) exceeds the Minimum Transferor Percentage
on such date; provided, however, that if any Accumulation Period or
Amortization Period is in effect for any Series, any funds on deposit in the
Special Funding Account will be released and treated as Principal Collections
to the extent needed to cover principal payments due to or for the benefit of
such Series, but only to the extent that doing so would not cause the
Transferor Amount, expressed as a percentage of the Trust Principal Component
(reduced by the Privileged Assets Calculated Amount), to be less than the
Minimum Transferor Percentage.
Funds on deposit in the Special Funding Account will be invested by the
Trustee, at the direction of the Servicer, in Eligible Investments. Any
earnings (net of losses and investment expenses) earned on amounts on deposit
in the Special Funding Account during any Due Period will be withdrawn from
the Special Funding Account and treated as Yield Collections for such Due
Period.
Defaulted Receivables; Recoveries; Adjustments
"Defaulted Receivables" for any Due Period are Receivables which were
charged off as uncollectible in such Due Period. Unless otherwise specified in
the related Prospectus Supplement, Receivables in a Designated Account will be
considered charged off for the purposes of the Agreement on the earlier of (i)
the cycle billing date next following the date when such Designated Account
becomes 360 days past due from the date of the billing statement and (ii) the
cycle billing date on which such Designated Account is charged off in
accordance with the customary and usual servicing procedures of the Servicer.
The amount of Defaulted Receivables for any Due Period will be an amount (not
less than zero) equal to the product of one minus the Yield Factor and an
amount equal to (a) the amount of the Receivables that were charged off in
such Due Period less (b) the amount of Recoveries received by the Servicer in
such Due Period and less (c) the full amount of any Defaulted Receivables as
to which the Transferors or the Servicer are obligated to accept reassignment
for such Due Period unless certain events of bankruptcy, insolvency or
receivership have occurred with respect to one of the Transferors or the
Servicer. Unless otherwise specified in the related Prospectus Supplement, a
portion of all Defaulted Receivables (the "Investor Default Amount") will be
allocated to the Certificateholders' Interest for each Distribution Date in an
amount equal to the product of (a) the applicable Invested Percentage as
specified in the related Prospectus Supplement, during the immediately
preceding Due Period and (b) the amount of Defaulted Receivables for such Due
Period.
If the Servicer makes a downward adjustment of the amount of any Receivable
because of a rebate, refund, unauthorized charge, billing effort, nonpayment
of a Privileged Assets billed amount or certain other noncash items, or if the
Servicer otherwise adjusts downward the amount of any Receivable without
receiving collections therefor or charging off such amount as uncollectible,
or any Receivable is discovered as having been created through a fraudulent or
counterfeit action (each, an "Adjustment"), the Trust Principal Component will
be
43
reduced by the product of (i) one minus the Yield Factor and (ii) the amount
of such Adjustment. To the extent that such reduction in the Trust Principal
Component would cause the Transferor Amount, expressed as a percentage of the
Trust Principal Component (reduced, for the purpose of this calculation, by
the Privileged Assets Calculated Amount), to be less than 3%, the Transferors
shall deposit to the Collection Account an amount (the "Transfer Deposit
Amount") sufficient to cause the Transferor Amount as a percentage of the
Trust Principal Component (reduced as aforesaid) to be at least equal to 3%.
Any such deposit into the Collection Account shall be deemed a Principal
Collection.
As one of the features of Cardmembership, a Privileged Assets program (the
"Privileged Assets Program") is offered, under which Cardmembers can make
voluntary contributions to an annuity program with a TRS insurance affiliate.
Enrollees can choose a monthly contribution amount not to exceed $5,000 per
month, which amount is billed to their Card account. Payment of such billed
contribution amounts is voluntary, and therefore such amounts do not
constitute Receivables, although they are treated under the Agreement in the
same manner as Receivables when they are billed to Cardmembers, in the same
manner as Collections when they are paid by Cardmembers and in the same manner
as an Adjustment if they are not paid within 60 days of first being billed.
Because payment of Privileged Assets billed amounts is voluntary by the
Cardmember, a portion of the Privileged Assets billed amounts estimated to
have occurred with respect to the Designated Accounts in a Due Period is
excluded from the calculation of Trust Principal Component for the purposes of
determining whether the Transferor is required to add Accounts or to deposit
any Transfer Deposit Amount, whether a Pay Out Event has occurred and whether
the Transferor is permitted to remove Accounts. Such excluded portion (the
"Privileged Assets Calculated Amount") will be determined monthly as the
product of (a) one minus the Yield Factor, (b) the Privileged Assets billed
amounts estimated to have occurred with respect to the Designated Accounts in
the preceding Due Period and (c) a statistical formula applied to the lowest
monthly payment experience of Privileged Assets billed amounts for the
previous twelve months. Pursuant to the Agreement, if the estimated Privileged
Assets billed amounts in the Trust increase beyond a specified level or if the
payment rate of the Privileged Assets billed amounts in the entire Portfolio
falls below a specified level, the Transferors are required to remove, within
120 days of such occurrence, a portion of the Accounts of Cardmembers who have
enrolled in the Privileged Assets program. Unless otherwise provided in the
related Prospectus Supplement, Privileged Assets billed amounts are included
in the receivable balances and charge volume information for the Portfolio and
in the Receivable balances for the Designated Accounts.
Investor Charge-Offs
With respect to each Series of Certificates, if, on any Distribution Date,
the Investor Default Amount, if any, for such Distribution Date exceeds the
amount of Yield Collections which are allocated and available to fund such
amount, then the Invested Amount for such Series shall be reduced by the
aggregate amount of such excess, but not more than the Investor Default Amount
for such Distribution Date (an "Investor Charge-Off"). The Invested Amount for
such Series will thereafter be increased (but not in excess of the unpaid
principal balance of the Certificates of such Series) on any Distribution Date
by the amount of Yield Collections allocated and available for that purpose.
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 Invested
Amounts of the Classes of such Series.
Final Payment of Principal; Termination of Trust
With respect to each Series, the Certificates will be subject to optional
repurchase by the Transferors on any Distribution Date on or after which the
Invested Amount is reduced to an amount less than or equal to 10% (or such
other amount specified in the related Prospectus Supplement) of the initial
Invested Amount, unless certain events of bankruptcy, insolvency or
receivership have occurred with respect to a Transferor. Unless otherwise
specified in the related Prospectus Supplement, the repurchase price will be
equal to the total Invested Amount (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 through the day preceding the Distribution Date
with respect to which the repurchase occurs.
Each Prospectus Supplement will specify the final date on which principal
and interest on the Certificates will be scheduled to be distributed (the
"Series Termination Date"), subject to prior termination as provided
44
above. In the event that the Invested Amount of the Certificates is greater
than zero on the Series Termination Date, the Trustee will sell or cause to be
sold, and apply the proceeds to the extent necessary to pay such remaining
amounts to all Certificateholders pro rata as final payment of the
Certificates, an amount of Receivables up to 110% of the Invested Amount of
the Certificates at the close of business on such date, but not more than the
total amount of Receivables allocable to the Certificates, unless otherwise
specified in the related Prospectus Supplement. The proceeds of any such sale
will be treated as collections on the Receivables and applied as provided
above in "--Application of Collections."
Unless the Transferors instruct the Trustee otherwise, the Trust will only
terminate on the earlier to occur of: (a) the day following the day on which
the aggregate invested amounts of all Series issued by the Trust is zero or
(b) the date specified in the related Prospectus Supplement (the "Final
Termination Date"). Upon the termination of the Trust and the surrender of the
Exchangeable Transferor Certificate, the Trustee shall convey to the
Transferors all right, title and interest of the Trust in and to the
Receivables and other funds of the Trust (other than amounts in the accounts
maintained by the Trust for the final payment of principal and interest to
Certificateholders).
Pay Out Events
Unless otherwise specified in the related Prospectus Supplement, the
Revolving Period for a Series will continue through the end of the date
specified in the related Prospectus Supplement, unless a Pay Out Event occurs.
An Early Amortization or Early Accumulation Period will commence on the day on
which a Pay Out Event occurs or is deemed to occur. A "Pay Out Event" with
respect to all Series issued by the Trust refers to any of the following
events, unless otherwise specified in the related Prospectus Supplement:
(i) certain events of bankruptcy or insolvency relating to either
Transferor or TRS;
(ii) the Trust becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended; or
(iii) after any applicable grace period, a failure by the Transferors
to convey Receivables in Additional Accounts to the Trust when required
by the Agreement.
In addition, a Pay Out Event may occur with respect to any Series upon the
occurrence of any other event specified as a Pay Out Event in the related
Prospectus Supplement. The Early Amortization or Early Accumulation Period
will commence on the day on which an a Pay Out Event occurs or is deemed to
occur. Monthly distributions of principal to the Certificateholders or
deposits of principal to the Principal Funding Account, as specified in the
related Prospectus Supplement, will begin (if they have not already) on the
first Distribution Date following the Due Period in which a Pay Out Event
occurs or is deemed to have occurred. Thus, if an Early Amortization Period
commences, Certificateholders may begin receiving distributions of principal
earlier than they otherwise would have, which may shorten the final maturity
of the Certificates. If the only Pay Out Event to occur is either the
insolvency of a Transferor or TRS or the appointment of a receiver or
bankruptcy trustee for the Transferor or TRS, the receiver or bankruptcy
trustee for such Transferor or TRS may have the power to delay or prevent
commencement of the Early Amortization Period and Early Accumulation Period.
In addition to the consequences of a Pay Out Event discussed above, if TRS
(or another seller specified in the related Prospectus Supplement) or a
Transferor voluntarily files a bankruptcy petition or goes into liquidation or
any person is appointed a receiver or bankruptcy trustee of TRS (or such other
seller) or a Transferor, on the day of such appointment TRS (or such other
seller) will immediately cease to sell Receivables to RFC under the RFC
Receivable Purchase Agreement and promptly give notice to the Trustee of such
appointment. If a Transferor voluntarily files for bankruptcy or a receiver or
bankruptcy trustee is appointed for a Transferor, on the day of such
appointment such Transferor will immediately cease to transfer Receivables to
the Trust and such Transferor will promptly give notice to the Trustee of such
appointment. 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 of the Trust in a
commercially reasonable manner and to the best of its ability. Unless
otherwise instructed within a specified period by the Certificateholders
(other than a Transferor or TRS , as holder of the Class B Certificates of any
Series, if the bankruptcy of such Transferor or TRS, as applicable, resulted
in such Pay Out Event) representing undivided interests aggregating more than
50% of the aggregate principal amount of each Series issued by the Trust (or,
if such Series has more than one Class, of each Class thereof) and,
45
with respect to any Series, any other person specified in the related
Prospectus Supplement, the Trustee will sell, dispose of or otherwise
liquidate the Receivables of the Trust (other than the Receivables allocable,
in accordance with the Agreement, to any outstanding Series that voted to
continue the Trust) in accordance with the Agreement 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 on the Receivables and such proceeds allocable to the
Certificateholders will be distributed as specified above in "--Distributions
from the Collection Account" and in the related Prospectus Supplement.
Indemnification
Unless otherwise specified in the related Prospectus Supplement, the
Agreement provides that the Servicer indemnify the Trust, for the benefit of
Certificateholders, and the Trustee, including its officers, directors and
employees, from and against any loss, liability, expense, damage or injury
arising out of or relating to any claims, actions or proceedings brought or
asserted by third parties which are suffered or sustained by reason of any
acts or omissions of the Servicer pursuant to the Agreement and any Series
Supplement; provided, however, that the Servicer shall not indemnify the
Trust, the Trustee or the Certificateholders for any liabilities, costs or
expenses with respect to U.S. Federal, state or local income or franchise
taxes required to be paid by the Trust or the Certificateholders.
Under the Agreement, the Transferors indemnify injured parties for the
entire amount of any losses, claims, damages or liabilities arising out of or
based on the Agreement or the actions of the Servicer taken pursuant to the
Agreement as though the Agreement created a partnership under the Uniform
Partnership Act. The Transferors will also indemnify each Certificateholder
for any such losses, claims, damages or liabilities (other than those incurred
by a Certificateholder in the capacity of an investor in the certificates)
except to the extent that they arise from any action by any Certificateholder.
In the event of a Service Transfer, the successor Servicer will indemnify each
Transferor for any losses, claims, damages and liabilities of such Transferor
as described in this paragraph arising from the actions or omissions of such
successor Servicer.
The Agreement provides that none of the Transferors, the Servicer, TRS or
any of their directors, officers, employees or agents will be under any other
liability to the Trust, the Trustee, the Certificateholders, any Enhancement
provider or any other person for any action taken, or for refraining from
taking any action, in good faith pursuant to the Agreement. However, none of
the Transferors, the Servicer, TRS or any of their directors, officers,
employees or agents will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence of any such person in the performance of their duties or by reason
of reckless disregard of their obligations and duties thereunder.
In addition, the Agreement provides that the Servicer is not under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Agreement. The Servicer
may, in its sole discretion, undertake any such legal action which it may deem
necessary or desirable for the benefit of Certificateholders with respect to
the Agreement and the rights and duties of the parties thereto and the
interest of the Certificateholders thereunder.
Collection and Other Servicing Procedures
Unless otherwise specified in the related Prospectus Supplement, pursuant to
the Agreement, the Servicer, whether acting itself or through one or more
subservicers, will be responsible for servicing, collecting, enforcing and
administering the Receivables in accordance with the policies and procedures
and the degree of skill and care applied or exercised with respect to charge
card receivables owned by the Servicer or any subservicer.
TRS (or any other entity specified in the related Prospectus Supplement), as
Servicer, will be permitted under the Agreement to delegate its servicing
obligations. Notwithstanding any such delegation, TRS, as Servicer, will
continue to be liable for all of its obligations as Servicer under the
Agreement.
Servicing activities performed by the Servicer with respect to the
Designated Accounts include collecting and recording payments, communicating
with Cardmembers, investigating payment delinquencies, providing billing
records to Cardmembers and maintaining internal records. Managerial and
custodial services performed by the Servicer on behalf of the Trust include
providing assistance in any inspections of the documents and records relating
to the Designated Accounts and Receivables by the Trustee pursuant to the
Agreement, maintaining the agreements, documents and files relating to the
Designated Accounts and Receivables as
46
custodian for the Trust and providing related data processing and reporting
services for Certificateholders and on behalf of the Trustee.
Servicer Covenants
In the Agreement, the Servicer covenants to the Certificateholders and the
Trustee as to each Receivable and related Designated Account that: (i) it will
duly fulfill all obligations on its part to be fulfilled under or in
connection with the Receivable or Designated Account, and will maintain in
effect all qualifications required in order to service the Receivable or
Designated Account and will comply with all requirements of law in connection
with servicing the Receivables and the Designated Accounts, the failure to
comply with which would have a material adverse effect on Certificateholders;
(ii) it will not permit any rescission or cancellation of the Receivable,
except as ordered by a court of competent jurisdiction or except in accordance
with the Servicer's usual and customary servicing practices; and (iii) it will
do nothing to impair the rights of the Certificateholders in the Receivables
and will not reschedule, revise or defer payments due on the Receivables,
except in accordance with the Servicer's usual and customary servicing
practices.
Under the terms of the Agreement, the Servicer will be obligated to accept
the transfer of any Receivable if it discovers, or receives written notice
from the Trustee, that (i) any covenant of the Servicer set forth above has
not been complied with respect to such Receivable or (ii) the Servicer has not
complied in all material respects with all requirements of law applicable to
the Receivables or Designated Accounts, and in either case such noncompliance
has not been cured within 60 days thereafter and the Receivable has been
charged off as uncollectible or the proceeds of the Receivables are not
available to the Trust. Such assignment and transfer will be made when the
Servicer deposits an amount equal to the amount of such Receivable in the
Collection Account on the business day preceding the Distribution Date
following the Due Period during which such obligation arises, provided that,
if the Servicer is then required to make deposits to the Collection Account
more frequently than monthly, the Servicer shall make such deposits not later
than two business days after such obligation arises. The amount of such
deposit shall be deemed a payment in respect of the related Receivable and
will be treated under the Agreement in the same manner as are payments
received by the Servicer from Cardmembers under the Designated Accounts. Any
amounts so paid by the Servicer shall be allocated in respect of Yield
Collections and Principal Collections as provided in the Agreement. This
reassignment or transfer and assignment to the Servicer constitutes the sole
remedy available to the Certificateholders if such covenant or warranty of the
Servicer is not satisfied and the Trust's interest in any such reassigned
Receivables shall be automatically assigned to the Servicer.
Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, for each
Series of Certificates, the Servicer's compensation for its servicing
activities is a monthly servicing fee (the "Servicing Fee") payable at the
times and in the amounts specified in the related Prospectus Supplement. The
Servicing Fee will be allocated among the Transferor Interest and the
Certificateholders of all Series. The portion of the Servicing Fee allocable
to the Certificateholders' Interest on each Distribution Date (the "Monthly
Servicing Fee") or such other specified periodic basis is equal to one-twelfth
of the product of the applicable Servicing Fee and the Invested Amount as of
the last day of the second preceding Due Period. The remainder of the
Servicing Fee, which will be allocable to the Transferor Interest, will be
paid directly by the holder of the Exchangeable Transferor Certificate from
Yield Collections allocated to the Transferor Interest and neither the Trust
nor the Certificateholders will have any obligations to pay such portion of
the Servicing Fee. The Monthly Servicing Fee will be paid with respect to each
Due Period from the Collection Account (unless such amount has been netted
against deposits to the Collection Account) as described in the related
Prospectus Supplement.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Designated Accounts and the
Receivables including, without limitation, expenses related to enforcement of
the Receivables, payment of fees and disbursements of the Trustee and
independent accountant and all other fees and expenses which are not expressly
stated in the Agreement to be payable by the Trust or the Certificateholders
other than Federal, state and local income and franchise taxes, if any, of the
Trust.
47
Resignation and Certain Other Matters Regarding the Servicer
With respect to each Series of Certificates, the Servicer may not resign
from its obligations and duties under the Agreement, except, among other
reasons, (i) upon determination that such duties are impermissible under
applicable law, regulation or order or (ii) upon the satisfaction of the
following conditions: (a) the assumption of the duties and obligations of the
Servicer under the Agreement by a proposed successor Servicer, (b) the written
confirmation by the applicable Rating Agency that the rating of any related
Series of Certificates then outstanding will not, solely as a result of such
assumption, be reduced or withdrawn, (c) the delivery to the Trustee of an
opinion of counsel to the effect that such assumption will not materially
adversely affect the treatment of any related Series of Certificates then
outstanding, after such assumption, as debt for Federal income tax purposes
and that such assumption will not have any material adverse impact on the
Federal income taxation of the Trust or any related Certificateholder or
Certificate Owner, and (d) the proposed successor Servicer has a net worth of
not less than $50,000,000 and its regular business includes the servicing of
charge card or revolving credit receivables. No such resignation described in
clause (i) above will become effective until the Trustee or a successor to the
Servicer has assumed the Servicer's responsibilities and obligations under the
Agreement.
Any person into which, in accordance with the Agreement, any of the
Transferor or the Servicer may be merged or consolidated or any person
resulting from any merger or consolidation to which any of the Transferor or
the Servicer is a party, or any person succeeding to the business of any of
the Transferor or the Servicer will be the successor to the Transferor or the
Servicer, as the case may be, under the Agreement.
Servicer Default
Unless otherwise specified in the related Prospectus Supplement, in the
event of any Servicer Default (as defined below), either the Trustee or
Certificateholders evidencing undivided interests aggregating more than 50% of
the aggregate principal amount of all Series, 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, in its capacity
as servicer under the Agreement, with respect to all of the Receivables held
by the Trust and the proceeds thereof, and the Trustee shall thereafter
appoint a new Servicer (a "Service Transfer"). The rights and interests of the
Transferors under the Agreement in the Transferor Interest will not be
affected by any Service Transfer. The Transferors shall have the right, which
shall be exercisable at any time within 60 days of the giving of the notice of
termination as described above, to nominate to the Trustee the name of a
potential successor Servicer. The Trustee shall as promptly as possible
appoint the entity nominated by the Transferors if such entity meets certain
eligibility criteria set forth in the Agreement. If the Transferors do not
nominate an entity to be successor Servicer within such 60-day period, the
Trustee shall as promptly as possible appoint a successor Servicer, and if no
successor Servicer has been appointed by the Trustee and has accepted such
appointment by the time the Servicer ceases to act as Servicer, all authority,
power and obligations of the Servicer under the Agreement will pass to, and be
vested in, the Trustee. Prior to any Service Transfer, the Trustee will seek
to obtain bids from potential Servicers meeting certain eligibility
requirements set forth in the Agreement to serve as a successor Servicer for
servicing compensation not in excess of the Servicing Fee. If the Trustee is
unable to obtain any bids from eligible Servicers and the Servicer delivers an
officer's certificate to the effect that it cannot in good faith cure the
related Servicer Default, then the Trustee will offer to the Transferors the
right to accept the retransfer of all of the Receivables.
A "Servicer Default" refers to any of the following events:
(i) failure by the Servicer to make any payment, transfer or deposit,
or to give instructions to the Trustee to make any withdrawal, on the
date the Servicer is required to do so under the Agreement or any Series
Supplement thereto (upon expiration of a five business day grace period),
provided, however, that any such failure caused by a nonwillful act of
the Servicer shall not constitute a Servicer Default if the Servicer
promptly remedies such failure within five business days after receiving
notice thereof;
(ii) failure on the part of the Servicer duly to observe or perform
any other covenants or agreements of the Servicer in the Agreement or any
Series Supplement thereto which has a material adverse effect on the
Certificateholders of the related Series, which continues unremedied for
a period of 60 days after written notice and which continues to
materially adversely affect the rights of the
48
Certificateholders of any related Series then outstanding for such
period, or the Servicer assigns its duties under the Agreement, except as
specifically permitted thereunder;
(iii) any representation, warranty or certification made by the
Servicer in the Agreement or any Series Supplement thereto or in any
certificate delivered pursuant to the Agreement or any Series Supplement
thereto proves to have been incorrect when made, which has a material
adverse effect on the rights of the Certificateholders of the related
Series, and which material adverse effect continues for the
Certificateholders for a period of 60 days after written notice and which
continues to materially adversely affect the rights of the
Certificateholders of any related Series then outstanding for such
period; or
(iv) the occurrence of certain events of bankruptcy or insolvency
relating to the Servicer.
Unless otherwise stated in the related Prospectus Supplement,
notwithstanding the foregoing, a delay in or failure of performance referred
to under clause (i) above for a period of 10 business days after the
applicable grace period or a delay in or failure of performance referred to
under clauses (ii) or (iii) for a period of 60 business days after the
applicable grace period shall not constitute a Servicer Default, if such delay
or failure could not have been prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was caused by an act of
God or other similar occurrence. Upon the occurrence of any such event, the
Servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the Agreement
or any Series Supplement thereto and the Servicer shall provide the Trustee,
the issuer of any irrevocable letter of credit or provider of other form of
Enhancement, if any, applicable to any related Series, the Transferor and the
Certificateholders prompt notice of such failure or delay by it, together with
a description of its efforts to so perform its obligations. The Servicer will
immediately notify the Trustee in writing of an Servicer Default.
Reports To Certificateholders
Unless otherwise specified in the related Prospectus Supplement, prior to
each Distribution Date, the Servicer will forward to the Trustee a statement
(the "Monthly Servicer Report") prepared by the Servicer setting forth certain
information with respect to the Trust and the Certificates, including: (a) the
aggregate amount of Collections, the aggregate amount of Yield Collections and
the aggregate amount of Principal Collections processed during the immediately
preceding Due Period; (b) the applicable Invested Percentages for such Due
Period; (c) the total amount to be deposited in the Principal Funding Account,
if applicable; (d) the aggregate outstanding balance of the Designated
Accounts which were delinquent by, respectively, 30 days, 60 days, 90 days and
120 days or more as of the cycle billing date for each such Designated Account
occurring in the Due Period immediately preceding such Distribution Date; (e)
the Investor Default Amount for such Distribution Date; (f) the amount of
Investor Charge-Offs and the amount of reimbursements thereof for such
Distribution Date; (g) the amount of the Monthly Servicing Fee for such
Distribution Date; (h) the existing Deficit Controlled Amortization Amount or
Deficit Controlled Accumulation Amount, if applicable; (i) the aggregate
amount of Receivables in the Trust at the close of business on the last day of
the Due Period preceding such Distribution Date; (j) the Invested Amount at
the close of business on the last day of the Due Period immediately preceding
such Distribution Date; (k) the amount available under any Enhancement, if
any, at the close of business on such Distribution Date; and (1) whether a Pay
Out Event shall have occurred. The Trustee will make such statement available
to the Certificateholders or Certificate Owners upon request. In the case of a
Series of Certificates having more than one Class, the statements forwarded to
Certificateholders will provide information as to each Class of Certificates,
as appropriate.
On each Interest Payment Date (including the Expected Final Payment Date) or
Special Payment Date, as the case may be, the Paying Agent, on behalf of the
Trustee, will forward to each Certificateholder of record a statement (the
"Payment Date Statement") prepared by the Servicer setting forth the
information with respect to the Certificates set forth in the Monthly Servicer
Report supplied to the Trustee as described in the preceding paragraph since
the immediately preceding Interest Payment Date or Special Payment Date, as
the case may be, and the following additional information (which, in the case
of (a), (b) and (c) below, will be stated on the basis of an original
principal amount of $1,000 per Certificate): (a) the total amount distributed;
(b) the amount of such distribution allocable to principal on the
Certificates; (c) the amount of such distribution allocable to interest on the
Certificates; (d) the amount, if any, by which the principal balance of the
Certificates exceeds the Invested
49
Amount as of the Record Date with respect to such Interest Payment Date or
Special Payment Date, as the case may be; and (e) the "series factor" as of
the end of the Record Date with respect to such Interest Payment Date or
Special Payment Date (consisting of an eight-digit decimal expressing the
Invested Amount as of such Record Date (determined after taking into account
any increase or decrease in the Invested Amount which will occur on the
following Distribution Date) as a proportion of the Initial Invested Amount).
The fiscal year of the Trust ends on December 31 in each year. On or before
January 31 of each calendar year the Paying Agent, on behalf of the Trustee,
will furnish or cause to be furnished to each person who at any time during
the preceding calendar year was a Certificateholder of record (or, if so
provided in applicable Treasury regulations, made available to Certificate
Owners) a statement prepared by the Servicer containing the information
required to be provided by an issuer of indebtedness under the Code for such
calendar year or the applicable portion thereof during which such person was a
Certificateholder, together with such other customary information as the
Servicer deems necessary or desirable to enable the Certificateholders to
prepare their tax returns. See "Federal Income Tax Consequences."
Evidence As To Compliance
The Agreement provides that on or before March 31 of each calendar year (or
such other date specified in the related Prospectus Supplement), the Servicer
will cause a firm of nationally recognized independent accountants to furnish
a report to the effect that such firm has applied procedures, as agreed upon
between such firm and the Servicer, to certain documents and records relating
to the servicing of the Receivables and that, based upon such agreed-upon
procedures, no matters came to their attention that caused them to believe
that such servicing was not conducted in compliance with certain applicable
terms and conditions set forth in the Agreement except for such exceptions or
errors as shall be set forth in such statement. In addition, on or before
March 31 of each calendar year (or such other date specified in the related
Prospectus Supplement), such accountants will compare the mathematical
calculations of the amounts contained in the Monthly Servicer Reports and
other certificates delivered during such year with the computer reports of the
Servicer and statements of any agents engaged by the Servicer to perform
servicing activities which were the source of such amounts and deliver a
certificate to the Trustee stating that such amounts are in agreement except
for such exceptions which shall be set forth in such report.
The Agreement provides for delivery to the Trustee on or before March 31 of
each calendar year of a statement signed by an officer of the Servicer to the
effect that the Servicer has, or has caused to be, fully performed its
obligations in all material respects under the Agreement throughout the
preceding year or, if there has been a default in the performance of any such
obligation, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the Trustee
may be obtained by a request in writing delivered to the Trustee.
Amendments
Unless otherwise specified in the related Prospectus Supplement, the
Agreement and the related Series Supplement may be amended by the Transferors,
the Servicer and the Trustee, without Certificateholder consent to cure any
ambiguity, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, to add, modify or eliminate
such provisions as the transferors may deem necessary or advisable in order to
enable all or a portion of the Trust (i) to qualify as, and to permit an
election to be made to cause the Trust to be treated as, a "financial asset
securitization investment trust" as described in the provisions of Section
860L of the Internal Revenue Code and (ii) to avoid the imposition of state or
local income or franchise taxes imposed on the Trust's property or its income,
and to add any other provisions with respect to matters or questions arising
under the Agreement or the related Series Supplement which are not
inconsistent with the provisions of the Agreement or such Series Supplement.
The amendments which the Transferors may make without the consent of
Certificateholders pursuant to the preceding sentence include, without
limitation, the addition or deletion of a sale of Receivables and termination
of the Trust upon the occurrence of an insolvency of either of the
Transferors. In addition, the Agreement and the related Series Supplement may
be amended from time to time by the Transferors, the Servicer and the Trustee,
without Certificateholder consent, 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 Series then issued and outstanding
thereunder provided that (i) the Servicer must provide an opinion of counsel
to the Trustee to the
50
effect that such amendment will not materially and adversely affect the
interests of the Certificateholders of any outstanding Series thereunder (or
100% of the Class of Certificateholders so affected shall have consented),
(ii) such amendment shall not, as evidenced by an opinion of counsel, cause
the Trust to be characterized for Federal income tax purposes as an
association taxable as a corporation or otherwise have any material adverse
impact on the Federal income taxation of any outstanding Series of
Certificates thereunder or any Certificate Owner and (iii) the applicable
Rating Agency shall confirm that such amendment shall not cause a reduction or
withdrawal of the rating of any outstanding Series of Certificates thereunder.
Any Series Supplement and any amendments regarding the addition or removal of
Receivables from the Trust will not require Certificateholder consent under
the provisions of the Agreement or any Series Supplement.
The Agreement and the related Series Supplement may also be amended by the
Transferors, the Servicer and the Trustee (a) in the case of a change in the
permitted activities of the Trust which is not materially adverse to
Certificateholders, with the consent of Certificateholders evidencing not less
than 50% of the aggregate unpaid principal amount of the Certificates of each
outstanding Series affected by such change, unless such change is necessary
for compliance with accounting requirements or tax requirements or required to
cure any ambiguity or correct or supplement any provision contained in the
Agreement or any Series Supplement which may be defective or inconsistent with
any provisions thereof and (b) in all other cases, with the consent of the
holders of Certificates evidencing undivided interests aggregating not less
than 66 2/3% of the principal amount of all Series adversely affected for the
purpose of adding any provisions to, changing in any manner or eliminating any
of the provisions of the Agreement or the related Series Supplement or of
modifying in any manner the rights of Certificateholders of any Series then
issued thereunder and outstanding. No such amendment, however, may (i) reduce
in any manner the amount of, or delay the timing of, distributions required to
be made on such Series, (ii) change the definition or the manner of
calculating the invested amount, invested percentage, the applicable available
amount under any Enhancement or the investor default amount of such Series, or
(iii) reduce the aforesaid percentage of undivided interests the holders of
which are required to consent to any such amendment, in each case without the
consent of all Certificateholders of all Series adversely affected.
In addition to being subject to amendment pursuant to the provisions
described above, the Pooling and Servicing Agreement and the relevant Series
Supplement may be amended by the Transferors without the consent of the
Servicer, the Trustee or any Certificateholder to account for the transfer of
assets as sales in accordance with FASB Statement No. 140, including providing
for the transfer of receivables from Centurion Bank to a bankruptcy-remote
special purpose entity and from that entity to the Trust. Promptly after the
effectiveness of any such amendment, the Transferors shall deliver a copy of
such amendment to each of the Servicer, the Trustee, each Rating Agency and
any other party entitled to receive it pursuant to the relevant supplement.
Furthermore, such amendment shall be subject to the delivery by the
Transferors of a tax opinion.
Promptly following the execution of any amendment to the Agreement or a
Series Supplement, the Trustee will furnish written notice of the substance of
such amendment to each Certificateholder of all Series.
List of Certificateholders
With respect to each Series of Certificates, upon written request of three
or more Certificateholders of record or any Certificateholder or group 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 the Invested Amount, 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
The Trustee is The Bank of New York. Any 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
Transferors, the Servicer and any of their respective affiliates may hold
Certificates in their own names; however, any Certificates so held shall not
be entitled to participate in any decisions made or instructions given to the
Trustee by the Certificateholders as a group.
For purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint a co-trustee or
separate trustees of all or any part of the Trust. In the event of such an
appointment, all
51
rights, powers, duties and obligations conferred or imposed upon the Trustee
will be conferred or imposed upon and exercised or performed by the Trustee
and such separate trustee or co-trustee jointly, or, in any jurisdiction in
which the Trustee will 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 a successor Trustee will
be appointed as provided in the Agreement. The Servicer may also remove the
Trustee, if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, a
successor Trustee will be appointed as provided in the Agreement. Any
resignation or removal of the Trustee and appointment of a successor Trustee
does not become effective until acceptance of the appointment by the successor
Trustee.
ENHANCEMENT
General
For any Series, Enhancement may be provided with respect to one or more
Classes thereof. Enhancement may be in the form of a letter of credit, a
maturity guaranty facility, a cash collateral account, a cash collateral
guaranty, a collateral interest, a tax protection agreement, an interest rate
swap, an interest rate cap, a surety bond, a guaranteed rate agreement, an
insurance policy, a spread account, a reserve account, a subordinated interest
in the Receivables or certain cash flows in respect of the Receivables or
other contract or agreement for the benefit of Certificateholders of such
Series or Class. 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. If so
specified in the related Prospectus Supplement, any form of Enhancement may be
structured so as to be drawn upon by more than one Class to the extent
described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by the Enhancement or which are not covered by the Enhancement,
Certificateholders will bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, the related Prospectus
Supplement will include a description of (a) the amount payable under such
Enhancement, (b) any conditions to payment thereunder not otherwise described
herein, (c) the conditions (if any) under which the amount payable under such
Enhancement may be reduced and under which such Enhancement may be terminated
or replaced and (d) any material provision of any agreement relating to such
Enhancement. Additionally, the related Prospectus Supplement may set forth
certain information with respect to any 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 such 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, 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. In such
event, the Enhancer will have an interest in certain cash flows in respect of
the Receivables to the extent described in such Prospectus Supplement (the
"Enhancement Invested Amount").
Subordination
If so specified in the related Prospectus Supplement, one or more Classes of
Subordinated Certificates of any Series will be subordinated as described in
the related Prospectus Supplement to the extent necessary to fund payments
with respect to the Senior Certificates. The rights of the holders of any such
Subordinated Certificates to receive distributions of principal and/or
interest on any Distribution Date for such Series will be subordinate in right
and priority to the rights of the holders of Senior Certificates, but only to
the extent set forth in the related Prospectus Supplement. If so specified in
the related Prospectus Supplement, subordination may apply only in the event
of certain types of losses not covered by another Enhancement. The related
Prospectus Supplement will
52
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 such 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.
Letter of Credit
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof 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 Enhancement. The issuer of the
letter of credit (the "L/C Bank") 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.
The maximum liability of an L/C Bank under its letter of credit will
generally be an amount equal to a percentage specified in the related
Prospectus Supplement of the initial Invested Amount 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.
Cash Collateral Guaranty or Account
If so 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 so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof 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 related Prospectus Supplement
which will be increased (i) to the extent the Transferors elect, subject to
certain conditions specified in the related Prospectus Supplement, to apply
Principal Collections allocable to the Collateral Interest to decrease the
Collateral Interest, (ii) to the extent Principal Collections 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 Yield Collections are required to be deposited into the Cash
Collateral Account as specified in the related Prospectus Supplement. The
total amount of the 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.
Surety Bond or Insurance Policy
If so specified in the related Prospectus Supplement, insurance with respect
to a Series or one or more Classes thereof 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.
53
If so specified in the related Prospectus Supplement, a surety bond will be
purchased for the benefit of the holders of any Series or Class of 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 so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof 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 assure the 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 so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by the establishment of a
reserve account (the "Reserve Account"). The Reserve Account may be funded, to
the extent provided in the related Prospectus Supplement, by an initial cash
deposit, the retention of certain periodic distributions of principal or
interest or both otherwise payable to one or more Classes of Certificates,
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 assure the subsequent
distribution of principal or interest on the Certificates of such Series or
Class thereof in the manner provided in the related Prospectus Supplement.
DESCRIPTION OF THE RFC RECEIVABLE PURCHASE AGREEMENT
The Receivables in the Designated Accounts that are owned by TRS, and which
are transferred to the Trust by RFC, were purchased by RFC from TRS pursuant
to the RFC Receivable Purchase Agreement, dated as of June 30, 1992, as
amended and supplemented, between RFC, as purchaser, and TRS, as seller (the
"RFC Receivables Purchase Agreement"). (A copy of the RFC Receivable Purchase
Agreement is incorporated by reference to the Registration Statement of which
this Prospectus is a part.) The following summary describes certain terms of
the RFC Receivable Purchase Agreement.
Sale of Receivables
Under the RFC Receivable Purchase Agreement, TRS sold to RFC all of TRS'
right, title and interest in and to the Receivables existing and arising in
the Designated Accounts owned by TRS. Under the Agreement, all of such
Receivables are, in turn, assigned by RFC to the Trust, and RFC has assigned
all of its rights in, to and under the RFC Receivable Purchase Agreement to
the Trust. In addition, under the RFC Receivable Purchase Agreement, TRS may
sell to RFC all of its right, title and interest in and to the Receivables
existing and arising in Additional Accounts owned by TRS. Unless otherwise
specified in the related Prospectus Supplement, the purchase price for the
Receivables sold by TRS to RFC was paid and will be payable by RFC in cash or,
at the election of RFC, as a capital contribution by TRS, RFC's parent, or a
combination thereof.
In connection with the sale of the Receivables contemplated by the RFC
Receivable Purchase Agreement, TRS has indicated and will indicate in its
records, including any computer files, that the Receivables in the Designated
Accounts owned by TRS have been sold to RFC by TRS and that such Receivables,
in turn, have been transferred by RFC to the Trust. In addition, TRS provided
and will provide to RFC a computer file or a microfiche list containing a true
and complete list identifying the Designated Accounts by account number and
total outstanding balance on the Cut Off Date or Additional Account Cut Off
Date, as the case may be, as of which the Receivables in such Designated
Account were sold to RFC. The records and agreements relating to such
Designated Accounts and Receivables have not been and will not be segregated
by TRS from other documents and agreements relating to other charge accounts
and receivables and have not been and will not be stamped or marked to reflect
the sale thereof to RFC. TRS has filed UCC financing statements naming itself
as debtor and RFC as secured party and meeting the requirements of state law
in New York with respect to the Receivables arising under the Designated
Accounts, the Receivables of which have been sold by it to RFC, and will
similarly file UCC financing statements with respect to such Receivables in
any Additional Accounts. See "Risk Factors--Certain Legal Aspects" and
"Certain Legal Aspects of Receivables."
Pursuant to the RFC Receivable Purchase Agreement, TRS may, if RFC is
required to designate Additional Accounts under the Agreement, upon request of
RFC designate Additional Accounts to be included as Designated
54
Accounts under the RFC Receivable Purchase Agreement. TRS and RFC may also
agree from time to time to designate Additional Accounts under the RFC
Receivable Purchase Agreement. RFC may require TRS to repurchase Receivables
existing or to be created in Designated Accounts designated as Removed
Accounts pursuant to the Agreement. See "Description of the Certificates and
the Agreement--Removal of Designated Accounts."
Representations and Warranties
TRS has represented and warranted to RFC in the RFC Receivable Purchase
Agreement, that on the Closing Date (a) TRS is duly organized and validly
existing in good standing under the laws of the jurisdiction of its
organization, has the full corporate power, authority and legal right to own
its properties and conduct its business as such properties are presently owned
and such business is presently conducted, and to execute, deliver and perform
its obligations under the RFC Receivable Purchase Agreement, (b) the RFC
Receivable Purchase Agreement constitutes a legal, valid and binding
obligation of TRS, (c) the RFC Receivable Purchase Agreement constitutes a
valid sale to RFC of all right, title and interest of TRS in and to the
Receivables, whether then existing or thereafter created in the Designated
Accounts owned by TRS and the proceeds thereof which is effective as to each
such Receivable upon the creation thereof and (d) as of the applicable
Selection Date and, in the case of certain selection criteria, also as of the
applicable Cut Off Date (or as of the Additional Account Selection Date and,
in the case of certain selection criteria, also as of the Additional Account
Cut Off Date), each Account subject to the RFC Receivable Purchase Agreement
was an Eligible Account. Upon the breach of certain of the representations and
warranties described in this paragraph or if a material amount of the
Receivables are determined not to be Eligible Receivables, TRS will repurchase
from RFC for an amount of cash equal to the amount of cash which RFC is
required to deposit under the Agreement connection with such breach.
TRS has covenanted and will covenant to RFC for the benefit of all
Certificateholders of all Series which from time to time may have an interest
in the Trust that, as to the Receivables and the Designated Accounts subject
to the RFC Receivable Purchase Agreement, unless cured within 60 days from
receipt of notice from RFC or the Trustee, it will accept the transfer of any
Receivable sold by TRS to RFC that is charged off as uncollectible or any such
Receivable the proceeds of which are unavailable to the Trust if (i) such
Receivable is not an Eligible Receivable, (ii) such Receivable was not
conveyed by TRS to RFC free and clear of all liens (except such liens as may
be permitted by the Agreement) or in compliance in all material respects with
all requirements of law, (iii) all material information with respect to the
Receivables and the Designated Accounts related thereto in the list provided
by TRS to RFC was not true and correct in all material respects, (iv) TRS did
not obtain all consents, licenses, approvals or authorizations required in
connection with the conveyance of the Receivables to RFC and, in turn, to the
Trust, or (v) on the closing date with respect to the initial Designated
Accounts owned by TRS, and on the applicable Additional Account Closing Date
with respect to Additional Accounts owned by TRS, the computer file or list of
Designated Accounts or Additional Accounts, as the case may be, provided by
TRS to RFC was not an accurate and complete listing of all such Accounts in
all material respects as of the Cut Off Date or the Additional Account Cut Off
Date, as applicable, or the information contained therein with respect to the
identity of such Accounts and the Receivables existing thereunder was not true
and correct in all material respects as of the Cut Off Date or the Additional
Account Cut Off Date, as applicable. Additionally, TRS covenants in the RFC
Receivable Purchase Agreement to repurchase, under certain conditions, each
Receivable sold by it to RFC which is subject to certain specified liens
immediately upon the discovery of such liens. TRS shall repurchase any such
Receivable, if RFC is required to accept the retransfer of such Receivable
under the Agreement, on the date of such retransfer. The purchase price for
such Ineligible Receivable shall be the balance of such Receivable.
TRS has also agreed to indemnify RFC and to hold RFC harmless from and
against any and all losses, damages and expenses (including reasonable
attorneys' fees) suffered or incurred by RFC if the foregoing representations
and warranties are materially false.
Certain Covenants
In the RFC Receivable Purchase Agreement, TRS covenants to perform its
obligations under the account agreements relating to the Designated Accounts
owned by it and TRS' policies and procedures relating to the Designated
Accounts owned by it unless the failure to do so would not have a material
adverse effect on the rights of the Trust, as assignee of the Receivables
existing or arising thereunder, or the Certificateholders. In that regard,
55
TRS may change the terms and provisions of such account agreements or policies
and procedures in any respect (including, without limitation, the calculation
of the amount, or the timing, of charge-offs), so long as any such changes are
made applicable to comparable segments of the charge accounts owned and
serviced by TRS which have characteristics the same as, or substantially
similar to, the Designated Accounts.
In addition, TRS expressly acknowledges and consents to RFC's assignment of
its rights relating to Receivables and under the RFC Receivable Purchase
Agreement to the Trustee for the benefit of the Certificateholders. TRS also
agrees, for the benefit of the Trustee and any provider of any Enhancement,
that any amounts payable by TRS to RFC pursuant to the RFC Receivable Purchase
Agreement that are to be paid by RFC to the Trustee for the benefit of the
Certificateholders will be paid by TRS on behalf of RFC directly to the
Trustee.
Termination
The RFC Receivable Purchase Agreement will terminate immediately after the
Trust terminates. In addition, if pursuant to certain provisions of Federal
law, TRS becomes party to any bankruptcy or similar proceeding (other than as
a claimant) and, if such proceeding is not voluntary and it is not dismissed
within 90 days of its institution, or if a bankruptcy trustee is appointed for
TRS, TRS will immediately cease to sell Receivables to RFC and promptly give
notice of such event to the Transferor and to the Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
The following is a description of certain legal aspects of the transfer from
TRS to RFC of Receivables under the RFC Receivable Purchase Agreement and of
the assignment of Receivables by RFC and Centurion Bank, the Transferors, to
the Trust under the Agreement.
Transfer of Receivables
TRS represents and warrants that its transfer of receivables to RFC is an
absolute sale of those receivables. RFC and Centurion Bank each represents and
warrants that its transfer of receivables to the Trustee is either (i) an
absolute sale of those receivables or (ii) the grant of a security interest in
those receivables. For a description of the Trustee's rights if these
representations and warranties are not true, see "Description of the
Certificates -- Representations and Warranties" in this prospectus.
Each of Centurion Bank, TRS, and RFC takes steps under the UCC to perfect
its transferee's interest in the receivables. Nevertheless, if the UCC does
not govern these transfers and if some other action is required under
applicable law and has not been taken, payments to you could be delayed or
reduced.
Each of Centurion Bank, TRS, and RFC represents, warrants, and covenants
that its transfer of receivables is perfected and free and clear of the lien
or interest of any other entity, except for certain permitted liens. If this
is not true, the Trustee's interest in the receivables could be impaired, and
payments to you could be delayed or reduced. For instance,
o a prior or subsequent transferee of receivables could have an interest in
the receivables superior to the interest of the Trustee;
o a tax, governmental, or other nonconsensual lien that attaches to the
property of Centurion Bank, TRS, or RFC could have priority over the
interest of the Trustee in the receivables;
o the administrative expenses of a conservator, receiver, or bankruptcy
trustee for Centurion Bank or TRS could be paid from collections on the
receivables before Certificateholders receive any payments; and
o if insolvency proceedings were commenced by or against TRS, or if certain
time periods were to pass, the Trustee may lose any perfected interest in
collections held by TRS and commingled with other funds.
Certain Matters Relating To Bankruptcy
Centurion Bank is chartered as a Utah industrial loan corporation and is
regulated and supervised by the Utah Department of Financial Institutions,
which is authorized to appoint the Federal Deposit Insurance Corporation (the
"FDIC") as conservator or receiver for Centurion Bank if certain events occur
relating to Centurion Bank's financial condition or the propriety of its
actions. In addition, the FDIC, as Centurion Bank's primary federal regulator,
could appoint itself as conservator or receiver for Centurion Bank.
56
The Federal Deposit Insurance Act (the "FDIA"), as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, provides that
certain agreements and transfers of property by a financial institution cannot
be enforced against the FDIC. Opinions and policy statements issued by the
FDIC suggest that, because of the manner in which these transactions are
structured, the FDIC would respect the transfer of receivables by Centurion
Bank. Nevertheless, if the FDIC were to assert a contrary position, or were to
require the Trustee to go through the administrative claims procedure
established by the FDIC in order to obtain payments on the receivables, or
were to request a stay of any actions by the Trustee to enforce the Agreement
or the Certificates against Centurion Bank, delays in payments on the
Certificates and possible reductions in the amounts of those payments could
occur.
In addition, the FDIC as conservator or receiver for Centurion Bank could
repudiate the Agreement. The FDIA would limit the damages for this repudiation
to "actual direct compensatory damages" determined as of the date that the
FDIC was appointed as conservator or receiver. The FDIC, moreover, could delay
its decision whether to repudiate the Agreement for a reasonable period
following its appointment as conservator or receiver. Therefore, if the FDIC
as conservator or receiver for Centurion Bank were to repudiate the Agreement,
the amount payable to you could be lower than the outstanding principal and
accrued interest on the Certificates, thus resulting in losses to you.
If TRS or any of its affiliates were to become a debtor in a bankruptcy
case, the court could exercise control over the receivables on an interim or a
permanent basis. Although steps have been taken to minimize this risk, TRS or
any of its affiliates as debtor-in-possession or another interested party
could argue that
o TRS did not sell the receivables to RFC but instead borrowed money from
RFC and granted a security interest in the receivables;
o RFC and its assets (including the receivables) should be substantively
consolidated with the bankruptcy estate of TRS or any of its affiliates;
or
o the receivables are necessary for TRS or any of its affiliates to
reorganize.
If these or similar arguments were made, whether successfully or not,
payments to you could be delayed or reduced.
If TRS or any of its affiliates were to enter bankruptcy, moreover, the
Trustee and the Certificateholders could be prohibited from taking any action
to enforce the RFC Receivables Purchase Agreement or the Agreement against TRS
or those affiliates without the permission of the bankruptcy court.
Certificateholders also may be required to return payments already received if
TRS were to become a debtor in a bankruptcy case.
Regardless of any decision made by the FDIC or ruling made by a court, the
fact that Centurion Bank has entered conservatorship or receivership or that a
bankruptcy case has been commenced by or against TRS or its affiliates could
have an adverse effect on the liquidity and value of the Certificates.
In addition, regardless of the terms of the Agreement or any other
transaction document, and regardless of the instructions of those authorized
to direct the Trustee's actions, the FDIC as conservator or receiver for
Centurion Bank or a court overseeing the bankruptcy case of TRS or any of its
affiliates may have the power (i) to prevent or require the commencement of an
Early Amortization Period, (ii) to prevent, limit, or require the early
liquidation of receivables and termination of the Trust, or (iii) to require,
prohibit, or limit the continued transfer of receivables. Furthermore,
regardless of the terms of the Agreement or any other transaction document, a
bankruptcy court (i) could prevent the appointment of a successor Servicer or
(ii) could authorize TRS to stop servicing the receivables or providing
administrative services for RFC. If any of these events were to occur,
payments to you could be delayed or reduced.
Consumer Protection Laws
The relationship of the consumer and the provider of consumer credit is
extensively regulated by federal and state consumer protection laws. With
respect to Card accounts issued by Centurion Bank and TRS, the most
significant federal laws include the Federal Truth-in-Lending, Equal Credit
Opportunity, Fair Credit Reporting and Fair Debt Collection Practices Acts.
The statutes impose various disclosure requirements either before or when an
Account is opened, or both, and at the end of monthly billing cycles, and, in
addition, limit account holder liability for unauthorized use, prohibit
certain discriminatory practices in extending credit, and regulate practices
followed in collections. In addition, account holders are entitled under these
laws to have payments and
57
credits applied to credit and charge accounts promptly and to request prompt
resolution of billing errors. Congress and the states may enact new laws and
amendments to existing laws to regulate further the consumer credit industry.
The Trust may be liable for certain violations of consumer protection laws
that apply to the Receivables, either as assignee from the Transferors with
respect to obligations arising before transfer of the Receivables to the Trust
or as the party directly responsible for obligations arising after the
transfer. In addition, an Account holder may be entitled to assert such
violations by way of set-off against the obligation to pay the amount of
receivables owing. All Receivables that were not created in compliance in all
material respects with the requirements of such laws (if such noncompliance
has a material adverse effect on the Certificateholders' interest therein)
will be reassigned to the Transferors. The Servicer has also agreed in the
Agreement to indemnify the Trust, among other things, for any liability
arising from such violations. For a discussion of the Trust's rights if the
Receivables were not created in compliance in all material respects with
applicable laws, see "Description of the Certificates--Covenants,
Representations and Warranties."
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders if such laws result in any
Receivables being charged-off as uncollectible. See "Description of the
Certificates--Defaulted Receivables; Recoveries; Adjustments."
FEDERAL INCOME TAX CONSEQUENCES
General
The following is a discussion of material federal income tax consequences
relating to the investment in a Certificate offered hereunder. Additional
federal income tax considerations relevant to a particular Series may be set
forth in the related Prospectus Supplement. This discussion is based on
current law, which is subject to changes that could prospectively or
retroactively modify or adversely affect the tax consequences summarized
below. The discussion does not address all of the tax consequences relevant to
a particular Certificate Owner in light of that Certificate Owner's
circumstances, and some Certificate Owners may be subject to special tax rules
and limitations not discussed below. Each prospective Certificate Owner is
urged to consult its own tax adviser in determining the federal, state, local
and foreign income and any other tax consequences of the purchase, ownership
and disposition of a Certificate.
For purposes of this discussion, "U.S. Person" means a citizen or resident
of the United States, a corporation or partnership organized in or under the
laws of the United States, any state thereof, or any political subdivision of
either (including the District of Columbia), or an estate or trust the income
of which is includible in gross income for U.S. federal income tax purposes
regardless of its source. The term "U.S. Certificate Owner" means any
Certificate Owner that is a U.S. Person.
Treatment of The Certificates As Debt
The Transferors express in the Agreement the intent that for federal, state
and local income and franchise tax purposes, the Certificates will be debt
secured by the Receivables. The Transferors, by entering into the Agreement,
and each investor, by the acceptance of a beneficial interest in a
Certificate, will agree to treat the Certificates as debt for federal, state
and local income and franchise tax purposes. However, because different
criteria are used in determining the non-tax accounting treatment of the
transaction, the Transferors will treat the Agreement for certain non-tax
accounting purposes as causing a transfer of an ownership interest in the
Receivables and not as creating a debt obligation.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines its tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its
economic substance. In appropriate circumstances, the courts have allowed
taxpayers as well as the Internal Revenue Service (the "IRS") to treat a
transaction in accordance with its economic substance, as determined under
federal income tax law, even though the participants in the transaction have
characterized it differently for non-tax purposes.
The determination of whether the economic substance of a purchase of an
interest in property is instead a loan secured by the transferred property has
been made by the IRS and the courts on the basis of numerous factors designed
to determine whether the Transferors have relinquished (and the purchaser has
obtained) substantial incidents of ownership in the property. Among those
factors, the primary ones examined are whether the purchaser has the
opportunity to gain if the property increases in value, and has the risk of
loss if the property
58
decreases in value. Except to the extent otherwise specified in the related
Prospectus Supplement, Orrick, Herrington & Sutcliffe LLP, special counsel to
the Transferors ("Special Counsel"), is of the opinion that, under current law
as in effect on the Closing Date, although no transaction closely comparable
to that contemplated herein has been the subject of any Treasury regulation,
revenue ruling or judicial decision, for federal income tax purposes the
Certificates offered hereunder will not constitute an ownership interest in
the Receivables but will properly be characterized as debt. Except where
indicated to the contrary, the following discussion assumes that the
Certificates offered hereunder are debt for federal income tax purposes.
Treatment of the Trust
General. The Agreement permits the issuance of Certificates and certain
other interests (including any collateral interest) in the Trust, each of
which may be treated for federal income tax purposes either as debt or as
equity interests in the Trust. If all of the Certificates and other interests
(other than the Exchangeable Transferor Certificate) in the Trust were
characterized as debt, the Trust might be characterized as a security
arrangement for debt collateralized by the Receivables and issued directly by
the Transferors (or other holders of the Exchangeable Transferor Certificate).
Under such a view, the Trust would be disregarded for federal income tax
purposes. Alternatively, if some of the Certificates or other interests (other
than the Exchangeable Transferor Certificate) in the Trust were characterized
as equity, the Trust might be characterized as a separate entity owning the
Receivables, issuing its own debt, and jointly owned by the Transferors (or
other holders of the Exchangeable Transferor Certificate) and the other
holders of equity interests in the Trust.
Possible Treatment of the Trust as a Partnership or a Publicly Traded
Partnership. Although, as described above, Special Counsel is of the opinion
that the Certificates will properly be treated as debt for federal income tax
purposes, such opinion does not bind the IRS and thus no assurance can be
given that such treatment will prevail. If the IRS were to contend
successfully that some or all of the Exchangeable Transferor Certificate, the
Certificates or any other interest in the Trust (including certain collateral
interests) were equity in the Trust for federal income tax purposes, all or a
portion of the Trust could be classified as a partnership or as a publicly
traded partnership taxable as a corporation for such purposes. Because Special
Counsel is of the opinion that the Certificates will be characterized as debt
for federal income tax purposes and because any holder of an interest in a
collateral interest generally will agree to treat that interest as debt for
such purposes, no attempt will be made to comply with any tax reporting
requirements that would apply as a result of such alternative
characterizations.
If the Trust were treated in whole or in part as a partnership in which some
or all holders of interests in the publicly offered Certificates were
partners, that partnership could be classified as a publicly traded
partnership, and so could be taxable as a corporation. Further, regulations
published by the Treasury Department on December 4, 1995 (the "Regulations")
could cause the Trust to constitute a publicly traded partnership even if all
holders of interests in publicly offered Certificates are treated as holding
debt. The Regulations generally apply to taxable years beginning after
December 31, 1995, and thus could affect the classification of pre-existing
entities and the ongoing tax treatment of already completed transactions.
Although the Regulations provide for a 10-year grandfather period for a
partnership actively engaged in an activity before December 4, 1995, it is not
clear whether the Trust would qualify for this grandfather period. If the
Trust were classified as a publicly traded partnership, whether by reason of
the treatment of publicly offered Certificates as equity or by reason of the
Regulations, it would avoid taxation as a corporation if its income was not
derived in the conduct of a "financial business"; however, whether the income
of the Trust would be so classified is unclear.
Under the Code and the Regulations, a partnership will be classified as a
publicly traded partnership if equity interests therein are traded on an
"established securities market," or are "readily tradable" on a "secondary
market" or its "substantial equivalent." The Transferors intend to take
measures designed to reduce the risk that the Trust could be classified as a
publicly traded partnership by reason of interests in the Trust other than the
publicly traded Certificates. Although the Transferors expect such measures
will ultimately be successful, certain of the actions that may be necessary
for avoiding the treatment of such interests as "readily tradable" on a
"secondary market" or its "substantial equivalent" are not fully within the
control of the Transferors. As a result, there can be no assurance that the
measures the Transferors intend to take will in all circumstances be
sufficient to prevent the Trust from being classified as a publicly traded
partnership under the Regulations.
If the Trust were treated as a partnership other than a publicly traded
partnership taxable as a corporation, that partnership would not be subject to
federal income tax. Rather, each item of income, gain, loss and deduction
59
of the partnership generated through the ownership of the related Receivables
would be taken into account directly in computing taxable income of the
Transferors (or the holders of the Exchangeable Transferor Certificate) and
any Certificate Owners treated as partners in accordance with their respective
partnership interests therein. The amounts and timing of income reportable by
any Certificate Owners treated as partners would likely differ from that
reportable by such Certificate Owners had they been treated as owning debt. In
addition, if the Trust were treated in whole or in part as a partnership other
than a publicly traded partnership, income derived from the partnership by any
Certificate Owner that is a pension fund or other tax-exempt entity may be
treated as unrelated business taxable income. Partnership characterization
also may have adverse state and local income or franchise tax consequences for
a Certificate Owner. Further, if the Trust were treated in whole or in part as
a partnership and the number of holders of interests in the publicly offered
Certificates and other interests in the Trust treated as partners equaled or
exceeded 100, the Transferors may cause that Trust to elect to be an "electing
large partnership." The consequence of such election to investors could
include the determination of certain tax items at the partnership level and
the disallowance of otherwise allowable deductions. No representation is made
as to whether any such election will be made.
If the arrangement created by the Agreement were treated in whole or in part
as a publicly traded partnership taxable as a corporation, that entity would
be subject to federal income tax at corporate tax rates on its taxable income
generated by ownership of the Receivables. That tax could result in reduced
distributions to Certificate Owners. No distributions from the Trust would be
deductible in computing the taxable income of the corporation, except to the
extent that any Certificates were treated as debt of the corporation and
distributions to the related Certificate Owners were treated as payments of
interest thereon. In addition, distributions to Certificate Owners not treated
as holding debt would be dividend income to the extent of the current and
accumulated earnings and profits of the corporation (and Certificate Owners
may not be entitled to any dividends received deduction in respect of such
income).
FASIT Election. Upon satisfying certain conditions set forth in the
Agreement, the Transferors will be permitted to amend the Agreement and any
Series Supplement in order to enable all or a portion of a Trust to qualify
under the Code as a "Financial Asset Securitization Investment Trust" or
"FASIT" and to permit a FASIT election to be made with respect thereto. See
"Description of the Certificates--Amendments." Under the FASIT provisions of
the Code, a FASIT generally would avoid federal income taxation and could
issue securities substantially similar to the Certificates, and those
securities would be treated as debt for federal income tax purposes. However,
there can be no assurance that the Transferors will or will not cause any
permissible FASIT election to be made with respect to the Trust, or amend the
Agreement or any Series Supplement in connection with any election. If such an
election is made, it may cause a Certificate Owner to recognize gain with
respect to its Certificate, even though Special Counsel is of the opinion that
a Certificate will be treated as debt for federal income tax purposes without
regard to the election and the Certificate would be treated as debt following
the election. Additionally, any such election and any related amendments to
the Agreement and any Series Supplement may have other tax and non-tax
consequences to Certificate Owners. Accordingly, prospective Certificate
Owners should consult their tax advisors with regard to the effects of any
such election and any permitted related amendments on them in their particular
circumstances.
Taxation of Interest Income of U.S. Certificate Owners
General. Stated interest on a beneficial interest in a Certificate will be
includible in gross income in accordance with a U.S. Certificate Owner's
method of accounting.
Original Issue Discount. If the Certificates are issued with original issue
discount ("OID"), the provisions of sections 1271 through 1273 and 1275 of the
Internal Revenue Code of 1986 (the "Code") will apply to the Certificates.
Under those provisions, a U.S. Certificate Owner (including a cash basis
holder) generally would be required to accrue the OID on its interest in a
Certificate in income for federal income tax purposes on a constant yield
basis, resulting in the inclusion of OID in income somewhat in advance of the
receipt of cash attributable to that income. In general, a Certificate will be
treated as having OID to the extent that its "stated redemption price" exceeds
its "issue price," if such excess equals or exceeds 0.25 percent multiplied by
the weighted average life of the Certificate (determined by taking into
account only the number of complete years following issuance until payment is
made for any partial principal payments). Under section 1272(a)(6) of the
Code, special provisions apply to debt instruments on which payments may be
accelerated due to prepayments of other obligations securing those debt
instruments. However, no regulations have been issued interpreting those
provisions, and the
60
manner in which those provisions would apply to the Certificates is unclear.
Additionally, the IRS could take the position based on Treasury regulations
that none of the interest payable on a Certificate is "unconditionally
payable" and hence that all of such interest should be included in the
Certificate's stated redemption price at maturity. If sustained, such
treatment should not significantly affect the tax liability of most
Certificate Owners, but prospective U.S. Certificate Owners should consult
their own tax advisers concerning the impact to them in their particular
circumstances.
Market Discount. A U.S. Certificate Owner who purchases an interest in a
Certificate at a discount that exceeds any unamortized OID may be subject to
the "market discount" rules of sections 1276 through 1278 of the Code. These
rules provide, in part, that gain on the sale or other disposition of a
Certificate and partial principal payments on a Certificate are treated as
ordinary income to the extent of accrued market discount. The market discount
rules also provide for deferral of interest deductions with respect to debt
incurred to purchase or carry a Certificate that has market discount.
Market Premium. A U.S. Certificate Owner who purchases an interest in a
Certificate at a premium may elect to offset the premium against interest
income over the remaining term of the Certificate in accordance with the
provisions of section 171 of the Code.
Sale or Exchange of Certificates
Upon a disposition of an interest in a Certificate, a U.S. Certificate Owner
generally will recognize gain or loss equal to the difference between the
amount realized on the disposition and the U.S. Certificate Owner's adjusted
basis in its interest in the Certificate. The adjusted basis in the interest
in the Certificate will equal its cost, increased by any OID or market
discount includible in income with respect to the interest in the Certificate
prior to its sale and reduced by any principal payments previously received
with respect to the interest in the Certificate and any amortized premium.
Subject to the market discount rules, gain or loss will be capital gain or
loss if the interest in the Certificate was held as a capital asset. Capital
losses generally may be used only to offset capital gains.
Foreign Certificate Owners
Under United States federal income tax law now in effect, payments of
interest by the Trust to a Certificate Owner who, as to the United States, is
a nonresident alien individual or a foreign corporation (a "Foreign Person"),
generally will be considered "portfolio interest" and generally will not be
subject to U.S. federal income tax and withholding tax, provided the interest
is not effectively connected with the conduct of a trade or business within
the United States by the Foreign Person, unless (i) the Foreign Person
actually or constructively owns 10 percent or more of the total combined
voting power of all classes of stock of either of the Transferors entitled to
vote (or of a profits or capital interest of the Trust if characterized as a
partnership, or of stock in the Trust if treated as a corporation), (ii) the
Foreign Person is a controlled foreign corporation that is related to either
of the Transferors (or the Trust if treated as a partnership) through stock
ownership, (iii) the Foreign Person is a bank receiving interest described in
Code Section 881(c)(3)(A), (iv) such interest is contingent interest described
in Code Section 871(h)(4), or (v) the Foreign Person bears certain
relationships to any holder of either of (a) the Exchangeable Transferor
Certificate other than either of the Transferors or (b) any other interest in
the Trust not properly characterized as debt. To qualify for the exemption
from taxation, the last U.S. Person in the chain of payment prior to payment
to a Foreign Person (the "Withholding Agent") must have received (in the year
in which a payment of interest or principal occurs or in either of the two
preceding years) a statement that (i) is signed by the Foreign Person under
penalties of perjury, (ii) certifies that the Foreign Person is not a U.S.
Person and (iii) provides the name and address of, and certain additional
information concerning, the Foreign Person. The statement may be made on a
Form W-8BEN or substantially similar substitute form, and the Foreign Person
must inform the Withholding Agent of any change in the information on the
statement within 30 days of the change. If a Certificate is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. However, in that case, the signed statement must be accompanied by a
Form W-8BEN or substitute form provided by the Foreign Person to the
organization or institution holding the Certificate on behalf of the Foreign
Person. If interest is not portfolio interest, then it will be subject to
United States federal income and withholding tax at a rate of 30 percent,
unless reduced or eliminated under an applicable tax treaty or interest is
effectively connected with the conduct of a trade or business within the
United States and, in either case, the appropriate statement has been
provided. Special
61
rules apply to partnerships, estates and trusts, and in certain circumstances,
certifications as to foreign status and other matters may be required to be
provided by partners and beneficiaries thereof.
Generally, any gain or income realized by a Foreign Person upon retirement
or disposition of an interest in a Certificate will not be subject to U.S.
federal income tax, provided that (i) in the case of a 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 retirement or
disposition occurs and (ii) in the case of gain representing accrued interest,
the conditions described in the preceding paragraph for exemption from
withholding are satisfied. Certain exceptions may be applicable, and an
individual Foreign Person should consult a tax adviser.
If the Certificates were treated as an interest in a partnership, the
recharacterization could cause a non-U.S. Certificate Owner to be treated as
engaged in a trade or business in the United States. In that event, the non-
U.S. Certificate Owner would be required to file a federal income tax return
and, in general, would be subject to U.S. federal income tax (including the
branch profits tax) on its net income from the partnership. Further, certain
withholding obligations apply with respect to income allocable or
distributions made to a foreign partner. That withholding may be at a rate as
high as the highest applicable marginal rate. If some or all of the
Certificates were treated as stock in a corporation, any related dividend
distributions to a non-U.S. Certificate Owner generally would be subject to
withholding of tax at the rate of 30 percent, unless that rate were reduced by
an applicable tax treaty.
The U.S. Treasury Department has recently issued final Treasury regulations
which revise various procedural matters relating to withholding taxes.
Certificates Owners should consult their tax advisers regarding the procedures
whereby they may establish an exemption from withholding.
Backup Withholding and Information Reporting
Payments of principal and interest, as well as payments of proceeds from the
sale, retirement or other disposition of a Certificate, may be subject to
"backup withholding" tax under the Code if a recipient of such payments fails
to furnish to the payor certain identifying information. Any amounts deducted
and withheld would be allowed as a credit against such recipient's United
States federal income tax, provided that appropriate proof is provided under
the rules established by the Internal Revenue Service. Furthermore, certain
penalties may be imposed by the Internal Revenue Service on a recipient of
payments that is required to supply information but that does not do so in the
proper manner. Backup withholding will not apply with respect to payments made
to certain exempt recipients, such as corporations and financial institutions.
Information may also be required to be provided to the Internal Revenue
Service concerning payments, unless an exemption applies. Certificate Owners
should consult their tax advisers regarding their qualification for exemption
from backup withholding and information reporting and the procedure for
obtaining such an exemption.
State and Local Taxation
The discussion above does not address the taxation of the Trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
Certificates under any state or local tax law. Each investor should consult
its own tax adviser regarding state and local tax consequences.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on those pension, profit sharing and other
employee benefit plans to which it applies and on those persons who are
fiduciaries with respect to such plans. In accordance with ERISA's fiduciary
standards, before purchasing Certificates a fiduciary should determine whether
such an investment is permitted under the documents and instruments governing
the plan and is appropriate for the plan in view of its overall investment
policy and the composition and diversification of its investment portfolio.
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan, an individual retirement account or a
Keogh plan which is subject to such provisions (a "Plan") from engaging in
certain transactions involving "plan assets" with certain persons ("parties in
interest" under ERISA or "disqualified persons" under the Code (collectively,
"Parties in Interest")) with respect to the Plan. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons. For example, a prohibited
transaction would arise, unless an exemption is applicable,
62
if a Certificate were viewed as debt of either Transferor and such Transferor
were a Party in Interest with respect to a Plan that acquired the Certificate.
Moreover, additional prohibited transactions could arise if the Trust Assets
were deemed to constitute "plan assets" of any Plan that owned Certificates.
The Department of Labor ("DOL") has issued a final regulation (the "Final
Regulation") concerning the definition of what constitutes "plan assets" of a
Plan subject to ERISA or Section 4975 of the Code. Under the Final Regulation,
the assets and properties of corporations, partnerships and certain other
entities in which a Plan makes an investment in an "equity interest" could be
deemed to be "plan assets" of the Plan in certain circumstances. Accordingly,
if Plans (or other entities whose assets include "plan assets") purchase
Certificates, the Trust could be deemed to hold "plan assets" unless one of
the exceptions under the Final Regulation (or another statutory or
administrative exemption) is applicable to the Trust. The operations of the
Trust could result in prohibited transactions if Plans that purchase the
Certificates are deemed to own an interest in the underlying assets of the
Trust. There may also be an improper delegation of the responsibility to
manage plan assets if Plans that purchase the Certificates are deemed to own
an interest in the underlying assets of the Trust.
The Final Regulation only applies to the purchase by a Plan of an "equity
interest" in an entity. Assuming that a Certificate is an equity interest, the
Final Regulation contains an exception which provides that if a Plan (or an
entity whose assets include "plan assets") acquires a "publicly-offered
security," the issuer of the security is not deemed to hold "plan assets". A
"publicly-offered security" is a security which is (i) freely transferable,
(ii) part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another at the conclusion of the initial
offering and (iii) either is (A) 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 Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred. Each Class of Certificates of any Series must be tested
separately for this purpose.
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 and then will be timely registered under the Exchange Act. Based on
information provided by any underwriter, agent or dealer involved in the
distribution of the Certificates offered hereby, the Transferors 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 of Certificates) 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
independent investor criterion 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 fail to meet the criteria of publicly-offered securities
and the Trust's assets are deemed to include "plan assets" of
Certificateholders that are Plans, transactions involving the Trust and
Parties in Interest with respect to such Plans holding such Certificates 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 Plan is
a Cardmember under one of the Designated Accounts, under DOL interpretations
the purchase of such Certificates by such Plan could constitute a prohibited
transaction. The following five class exemptions issued by the DOL could apply
in such event: DOL Prohibited Transaction Class Exemption ("PTCE") 96-23
(Class Exemption for Plan Asset Transactions Determined by In-House Asset
Managers), 95-60 (Class Exemption for Certain Transactions Involving Insurance
Company General Accounts), PTCE 91-38 (Class Exemption for Certain
Transactions Involving Bank Collective Investment Funds), PTCE 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled Separate
Accounts) and PTCE 84-14 (Class Exemption for Plan Asset Transactions
determined by Independent Qualified Professional Asset Managers). There is no
assurance that these exemptions, even if all of the conditions specified
therein are satisfied, will apply to all transactions involving the Trust's
assets.
Moreover, as discussed above, although (unless provided otherwise in the
applicable Prospectus Supplement) Special Counsel has given its opinion that
the Certificates will properly be treated as debt for federal income tax
purposes, if any Certificates are treated as equity interests in a partnership
for such purposes in
63
which other Certificates are debt, all or part of a tax-exempt investor's
share of income from the Certificates that are treated as equity could be
treated as unrelated debt-financed income under the Code and taxable to the
investor.
In addition, the Transferors or their affiliates may be considered to be
Parties in Interest or fiduciaries with respect to some Plans. Accordingly, an
investment by such a Plan in Certificates may constitute or result in a
prohibited transaction under ERISA and Section 4975 of the Code unless such
investment is subject to a statutory or administrative exemption.
In light of the foregoing, fiduciaries of Plans (or other entities whose
assets include "plan assets") considering the purchase of Certificates should
consult their own counsel as to whether the acquisition of such Certificates
would constitute or result in a prohibited transaction, whether the Trust
assets which are represented by such Certificates would be considered "plan
assets," the consequences that would apply if the Trust assets were considered
"plan assets," the applicability of exemptive relief from the prohibited
transaction rules and the applicability of the tax on unrelated business
income and unrelated debt-financed income.
Unless otherwise provided in the applicable Supplement, if the Transferors
do not notify the Trustee, as described above, that the Certificates of any
particular Series (or Class) will be expected to be held by at least 100
separately named persons, the Certificates of such Series (or Class) may not
be acquired by any Plan or by any entity investing assets that are treated as
"plan assets" of a Plan. Furthermore, in that case, the Agreement and the
applicable Prospectus Supplement will provide that each holder of such
Certificate shall be deemed to have represented and warranted that it is not a
Plan and is not purchasing such Certificate on behalf of a Plan or with assets
that are treated as "plan assets" of a Plan.
LEGAL MATTERS
Unless other legal counsel is specified in the related Prospectus
Supplement, certain legal matters relating to the Certificates will be passed
upon for RFC by Carol V. Schwartz, Group Counsel to American Express and, for
Centurion Bank, by Kevin J. Cooper, Counsel to American Express. Ms. Schwartz
and Mr. Cooper each own or have the right to acquire a number of shares of the
common stock of American Express, which, in the aggregate, is less than 0.05%
of the outstanding common stock of American Express. Certain other legal
matters will be passed upon for the Transferors, the Trust and the
Underwriters by Orrick, Herrington & Sutcliffe LLP. Certain legal matters
relating to the Federal tax consequences of the issuance of the Certificates
will be passed upon for the Transferors by Orrick, Herrington & Sutcliffe LLP.
Orrick, Herrington & Sutcliffe LLP has from time to time represented Centurion
Bank, RFC, the Servicer and Credco and certain of their affiliates.
PLAN OF DISTRIBUTION
The Transferors may sell the Certificates offered hereby either directly or
through one or more underwriters or underwriting syndicates (the
"Underwriters"). The Prospectus Supplement for each Series will set forth the
terms of the offering of such Series and of each Class within such Series,
including the name or names of the Underwriters, the proceeds to and their use
by the Transferors, and either the initial public offering price, the
discounts and commissions to the Underwriters and any discounts or concessions
allowed or reallowed to certain dealers, or the method by which the price at
which the Underwriters will sell the Certificates will be determined.
The Certificates of a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all the Certificates of a
Class described in the related Prospectus Supplement, if any are purchased. If
Certificates of a Series are offered other than through Underwriters, the
related Prospectus Supplement will contain information regarding the nature of
such offering and any agreements to be entered into between the Transferors
and purchasers of Certificates of such Series.
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.
64
INDEX OF DEFINED TERMS
Term Page
---- ----
Account ....................................................... 25
Account Originator ............................................ 22
Accumulation Period ........................................... 7
Act ........................................................... 9
Additional Account Closing Date ............................... 38
Additional Account Cut-Off Date ............................... 18
Additional Account Selection Date ............................. 27
Additional Accounts ........................................... 6, 21, 27
Adjustment .................................................... 43
Agreement ..................................................... 5
American Express .............................................. 28
Amortization Period ........................................... 7
Application Process ........................................... 25
BHC Act ....................................................... 18
Card .......................................................... 20, 25
Cardmember .................................................... 25
Cash Collateral Account ....................................... 53
Cash Collateral Guaranty ...................................... 53
Cede .......................................................... 3
Clearstream ................................................... 32
Clearstream Customers ......................................... 32
Centurion Bank ................................................ cover, 5, 28
Certificate Owners ............................................ 3
Certificate Rate .............................................. 7
Certificateholders ............................................ 3
Certificateholders' Interest .................................. 7
Certificates .................................................. cover, 5
Class ......................................................... 2
Closing Date .................................................. 10
Code .......................................................... 60
Collateral Interest ........................................... 53
Collection Account ............................................ 14, 39
Collections ................................................... 7
Commission .................................................... 3
Controlled Accumulation Amount ................................ 10
Controlled Accumulation Period ................................ 10
Controlled Amortization Amount ................................ 10
Controlled Amortization Period ................................ 10
Controlled Deposit Amount ..................................... 10
Controlled Distribution Amount ................................ 10
Cut Off Date .................................................. 6
Defaulted Receivables ......................................... 43
Definitive Certificates ....................................... 33
Depositaries .................................................. 30
Depository .................................................... 30
Designated Account ............................................ cover, 5, 27
Disclosure Document ........................................... 9
Distribution Date ............................................. 8, 30
DOL ........................................................... 63
DTC ........................................................... 9, A-1
Due Period .................................................... 7
Early Accumulation Period ..................................... 11
Term Page
---- ----
Early Amortization Period...................................... 11
Eligible Account............................................... 27
Eligible Institution........................................... 39
Eligible Investments........................................... 40
Eligible Receivable............................................ 38
Enhancement.................................................... 5
Enhancement Invested Amount.................................... 52
ERISA.......................................................... 62
Euroclear...................................................... 32
Euroclear Operator............................................. 32
Euroclear Participants......................................... 32
Excess Allocation Series....................................... 13
Excess Finance Charge Collections.............................. 42
Excess Principal Collections................................... 12
Exchange....................................................... 9
Exchange Act................................................... 3
Exchangeable Transferor Certificate............................ 8
Expected Final Payment Date.................................... 8
FASIT.......................................................... 60
FDIA........................................................... 57
FDIC........................................................... 56
Final Regulation............................................... 63
Final Termination Date......................................... 45
Financial Asset Securitization Investment Trust................ 60
Foreign Person................................................. 60
Global Securities.............................................. A-1
Holders........................................................ 33
Indirect Participants.......................................... 31
Ineligible Receivable.......................................... 37
Interest Funding Account....................................... 33
Interest Period................................................ 8
Invested Amount................................................ 7
Invested Percentage............................................ 7
Investor Charge-Off............................................ 44
Investor Default Amount........................................ 43
IRS............................................................ 58
L/C Bank....................................................... 53
MasterCard..................................................... 21
Minimum Transferor Percentage.................................. 39
Monthly Interest............................................... 12
Monthly Servicer Report........................................ 49
Monthly Servicing Fee.......................................... 47
Moody's........................................................ 19
New Accounts................................................... 19
OID............................................................ 60
Original Billing Date.......................................... 26
Participants................................................... 30
Parties in Interest............................................ 62
Paying Agent................................................... 31
Payment Date Statement......................................... 49
Pay Out Events................................................. 45
65
Terms Page
----- ----
Plan .......................................................... 62
Plan Assets ................................................... 63, 64
Portfolio ..................................................... 27
Pre-Approved Process .......................................... 25
Principal Collections ......................................... 23
Principal Commencement Date ................................... 8
Principal Funding Account ..................................... 10
Principal Terms ............................................... 35
Privileged Assets Calculated Amount ........................... 44
Privileged Assets program ..................................... 44
Prospectus Supplement ......................................... cover
PTCE .......................................................... 63
Rapid Amortization Period ..................................... 11
Rating Agency ................................................. 24
Receivables ................................................... cover, 5
Record Date ................................................... 30
Recoveries .................................................... 5
Recovery Arrangement .......................................... 26
Regulations ................................................... 59
Removed Accounts .............................................. 6, 28, 39
Reserve Account ............................................... 54
Revolving Period .............................................. 10
RFC ........................................................... cover, 5, 28
RFC Receivable Purchase Agreement ............................. 8, 54
Selection Date ................................................ 6
Senior Certificates ........................................... 7
Series ........................................................ cover
Series Supplement ............................................. 5
Series Termination Date ....................................... 44
Terms Page
----- ----
Service Transfer .............................................. 48
Servicer ...................................................... cover, 14
Servicer Default .............................................. 48
Servicing Fee ................................................. 47
S&P ........................................................... 19
Special Counsel ............................................... 59
Special Funding Account ....................................... 13
Spread Account ................................................ 54
Subordinate Certificates ...................................... 7
Terms and Conditions .......................................... 32
Transfer Deposit Amount ....................................... 44
Transferor .................................................... cover, 28
Transferor Amount ............................................. 7, 39
Transferor Interest ........................................... 7, 30
Transferor Percentage ......................................... 30
TRS ........................................................... cover, 5, 28
Trust ......................................................... cover, 5
Trustee ....................................................... cover, 5
Trust Portfolio ............................................... 27
Trust Principal Component ..................................... 12
Trustee ....................................................... cover, 5
Underwriters .................................................. 64
Undistributed Principal Collections ........................... 42
U.S. Certificate Owner ........................................ 58
U.S. Person ................................................... 58
VISA .......................................................... 21
Withholding Agent ............................................. 61
Yield Collections ............................................. 23
Yield Factor .................................................. 7
66
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, any globally offered Certificates
("Global Securities") will be available only in book-entry form. Unless
otherwise specified in a Prospectus Supplement for a Series, investors in
Global Securities may hold such Global Securities through any of The
Depository Trust Company ("DTC"), Clearstream 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
Clearstream and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
participants holding Global Securities will be effected on a delivery-against-
payment basis through the respective Depositaries of Clearstream and Euroclear
(in such capacity) and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or
their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co., as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Clearstream and
Euroclear will hold positions on behalf of their participants through their
respective depositories, which in turn will hold such positions in accounts as
participants of DTC.
Investors electing to hold their Global Securities through DTC (other than
through accounts in Clearstream or Euroclear) will follow the settlement
practices applicable to U.S. corporate debt obligations. Investor securities
custody accounts will be credited with their holdings against payment in same-
day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds in registered form. Global Securities will be credited
to the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Because the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC participants. Secondary market trading between DTC
participants (other than the Depositaries for Clearstream and Euroclear) will
be settled using the procedures applicable to U.S. corporate debt issues in
same-day funds.
Trading between Clearstream Customers and/or Euroclear Participants.
Secondary market trading between Clearstream Customers and/or Euroclear
Participants will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
Global Securities are to be transferred from the account of a participant in
DTC (other than the Depositaries for Clearstream and Euroclear) to the account
of a Clearstream Customer or a Euroclear Participant, the purchaser must send
instructions to Clearstream or Euroclear, as the case may be, prior to
settlement 12:30. Clearstream or Euroclear, as the case may be, will instruct
the respective Depositary to receive the Global Securities against payment.
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
A-1
system and by the clearing system, in accordance with its usual procedures, to
the Clearstream Customer's or Euroclear Participant's account. Credit for the
Global Securities will appear the next day (European time) and the cash debit
will be 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 Clearstream or Euroclear cash debit will be
valued instead as of the actual settlement date.
Clearstream Customers and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to preposition funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within Clearstream or Euroclear. Under this
approach, they may take on credit exposure to Clearstream or Euroclear until
the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of credit
to them, Clearstream Customers or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Clearstream Customers or Euroclear
Participants purchasing Global Securities would incur overdraft charges for
one day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially
reduce or offset the amount of such overdraft charges, although this result
will depend on each Clearstream Customer's or Euroclear Participant's
particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities
to the respective depositary for the benefit of Clearstream Customer 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 Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream Customers and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective depositary, to a DTC participant. The seller will send
instructions to Clearstream or Euroclear, as the case may be, prior to
settlement 12:30. In this case, Clearstream or Euroclear will instruct the
respective depositary to deliver the bonds to the DTC participant's account
against payment. The payment will then be reflected in the account of the
Clearstream Customer or Euroclear Participant the following day, and receipt
of the cash proceeds in the Clearstream Customer's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Clearstream Customer 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 may substantially reduce or offset
any overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Clearstream Customer's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream 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 interest 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 appropriate steps to obtain an exemption or reduced tax rate. See
"Federal Income Tax Consequences" in the prospectus for additional
information.
A-2
American Express Master Trust
Issuer
American Express Receivables Finance Corporation
Transferor
American Express Centurion Bank
Transferor
American Express Travel Related Services Company, Inc.
Servicer
$750,000,000 Class A Floating Rate Asset Backed Certificates
SERIES 2001-1
[AMERICAN EXPRESS LOGO]
---------------------
PROSPECTUS SUPPLEMENT
---------------------
Underwriters
SALOMON SMITH BARNEY
BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL
BLAYLOCK & PARTNERS, L.P.
DEUTSCHE BANC ALEX. BROWN
UTENDAHL CAPITAL PARTNERS, L.P.
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are offering the Class A certificates only in states where the offer is
permitted.
We claim the accuracy of the information in this prospectus supplement and the
accompanying prospectus as of the dates stated on their respective covers
only.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Class A certificates and with respect to their unsold
allotments or subscriptions. In addition, until the date which is 90 days
after the date of this prospectus supplement, all dealers selling the Class A
certificates will deliver a prospectus supplement and prospectus.