-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J52IbPXHTtXePSrQ9se4f+yPlMLdMuqe+oZm05rm4ycKmNZ5PAoYI3Baa3/2nzOG NVJ6V8II03XKah2m2h1NWg== 0000950149-99-001515.txt : 19990817 0000950149-99-001515.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950149-99-001515 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEXTCARD INC CENTRAL INDEX KEY: 0001081015 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 680384606 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26019 FILM NUMBER: 99693986 BUSINESS ADDRESS: STREET 1: 595 MARKET ST STREET 2: STE 1800 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4158369700 MAIL ADDRESS: STREET 1: 595 MARKET ST STREET 2: STE 1800 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 FORMER COMPANY: FORMER CONFORMED NAME: NEXT CARD INC DATE OF NAME CHANGE: 19990302 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _________. 0-26019 ------------------------ (Commission File Number) NEXTCARD, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 68-0384-606 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 595 MARKET STREET, SUITE 1800, SAN FRANCISCO, CALIFORNIA 94105 (Address of Principal Executive Offices) (Zip Code) (415) 836-9700 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X] As of July 31, 1999, there were 45,951,911 shares of the registrant's Common Stock, par value $.001 per share outstanding, of which 3,660,110 were nonvoting. 2 NEXTCARD, INC. AND SUBSIDIARY FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 INDEX
PART I. FINANCIAL INFORMATION PAGE ITEM 1. Financial Statements (unaudited): Condensed Balance sheets.................................... 3 Condensed Consolidated Statements of Operations.................................................. 4 Condensed Consolidated Statements of Changes in Stockholders' Equity..................................... 5 Condensed Consolidated Statements of Cash Flows............. 6 Notes to Condensed Consolidated Financial Statements.................................................. 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 11 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk........ 32 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................. 33 Item 2. Changes in Securities and Use of Proceeds.......................... 33 Item 3. Defaults Upon Senior Securities Holders............................ 33 Item 4. Submission of Matters to a Vote of Security Holders................ 34 Item 5. Other Information.................................................. 34 Item 6. Exhibits and Reports on Form 8-K................................... 34 Signatures................................................................. 36
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NEXTCARD, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (Unaudited)
JUNE 30, DECEMBER 31, 1999 1998 ------------- ------------- ASSETS: Cash and cash equivalents $ 131,327 $ 40,134 Cash and cash equivalents, restricted 8,600 -- Credit card loans receivable, less allowance for loan losses 140,525 -- of $2,007 at June 30, 1999 Servicing and profit-and-loss sharing receivable -- 966 Prepaid loan fees 5,725 2,100 Equipment and leasehold improvements, net 6,002 2,102 Prepaid and other assets 1,376 240 ------------- ------------- Total assets $ 293,555 $ 45,542 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Accounts payable $ 5,139 $ 3,366 Accrued expenses 4,231 1,242 Equipment loan 1,997 504 Other borrowings 10,000 -- Deferred revenue 484 493 Secured borrowings 126,629 -- ------------- ------------- Total liabilities 148,480 5,605 ------------- ------------- Stockholders' equity Convertible preferred stock -- 33 Common stock 46 5 Additional paid-in capital 213,460 63,875 Deferred stock compensation (20,783) (6,000) Notes receivable from stockholders (26) (26) Accumulated deficit (47,622) (17,950) ------------- ------------- Total stockholders' equity 145,075 39,937 ------------- ------------- Total liabilities and stockholders' equity $ 293,555 $ 45,542 ============= =============
See notes to consolidated financial statements. 3 4 NEXTCARD, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Interest income: Cash and investments $ 905 $ 79 $ 1,185 $ 112 Credit card loans 2,126 -- 2,506 -- ----------- ----------- ----------- ----------- Total interest income 3,031 79 3,691 112 Interest expense 1,866 1 2,513 1 ----------- ----------- ----------- ----------- Net interest income 1,165 78 1,178 111 Provision for loan losses 1,047 -- 2,042 -- Net interest income (loss) after ----------- ------------ ----------- ----------- provision for loan losses 118 78 (864) 111 Non-interest income: ----------- ----------- ----------- ----------- Servicing and profit-and-loss sharing 136 130 340 164 Interchange fee 318 -- 414 -- Credit card fees and other 159 3 202 3 ----------- ----------- ----------- ----------- Total non-interest income 613 133 956 167 Non-interest expenses: ----------- ----------- ----------- ----------- Salaries and employee benefits 5,288 1,349 8,597 2,138 Marketing and advertising 4,997 936 7,552 1,145 Credit card activation and servicing costs 2,481 391 4,003 442 Occupancy and equipment 877 160 1,429 276 Professional fees 211 77 466 118 Amortization of deferred compensation 3,381 235 4,747 399 Amortization of loan structuring fee 1,743 -- 2,311 -- Other 443 133 659 204 ----------- ----------- ----------- ----------- Total non-interest expenses 19,421 3,281 29,764 4,722 ----------- ----------- ----------- ----------- Loss before income taxes (18,690) (3,070) (29,672) (4,444) Provision for income taxes -- -- -- -- ----------- ----------- ----------- ----------- Net loss $ (18,690) $ (3,070) $ (29,672) $ (4,444) =========== =========== =========== =========== Basic and diluted net loss per common share $ (0.74) $ (1.03) $ (2.05) $ (1.53) =========== =========== =========== =========== Weighted average common shares used in net loss per common share calculation 25,153 2,970 14,509 2,912 =========== =========== =========== =========== Pro forma basic and diluted net loss per common share $ (0.45) $ (0.17) $ (0.76) $ (0.30) =========== =========== =========== =========== Weighted average common shares used in computing pro forma basic and diluted net loss per common share 41,104 18,046 38,797 14,994 =========== =========== =========== ===========
See notes to consolidated financial statements. 4 5 NEXTCARD, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data) (Unaudited)
CONVERTIBLE PREFERRED STOCK SERIES A-D COMMON STOCK ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ----------- ----------- ----------- BALANCES AT DECEMBER 31, 1997 9,110,250 $ 9 4,894,875 $ 5 Issuance of convertible preferred stock Series C 9,132,660 9 Return of convertible preferred stock Series A in settlement of notes receivable (21,096) Deferred stock compensation Amortization of deferred stock compensation Net loss ----------- ----------- ----------- ----------- BALANCES AT JUNE 30 ,1998 18,221,814 $ 18 4,894,875 $ 5 =========== =========== =========== =========== BALANCES AT DECEMBER 31, 1998 32,625,734 $ 33 4,932,374 $ 5 Issuance of common stock upon exercise of warrants and options 1,466,622 1 Issuance of common stock from IPO, net of expenses 6,900,000 7 Issuance of common stock warrants Conversion of preferred stock to common stock (32,625,734) (33) 32,625,734 33 Deferred stock compensation Amortization for deferred stock compensation Net loss ----------- ----------- ----------- ----------- BALANCES AT JUNE 30, 1999 -- $ -- 45,924,730 $ 46 =========== =========== =========== ===========
ADDITIONAL DEFERRED NOTES TOTAL PAID-IN STOCK RECEIVABLE FROM ACCUMULATED STOCKHOLDERS' CAPITAL COMPENSATION STOCKHOLDERS DEFICIT EQUITY ----------- ------------ --------------- ----------- ------------- BALANCES AT DECEMBER 31, 1997 $ 4,695 $ - $ (36) $ (1,886) $ 2,787 Issuance of convertible preferred stock Series C 11,662 11,671 Return of convertible preferred stock Series A in settlement of notes receivable (9) 9 -- Deferred stock compensation 1,700 (1,700) -- Amortization of deferred stock compensation 399 399 Net loss (4,444) (4,444) ----------- -------- ----------- ----------- ----------- BALANCES AT JUNE 30 ,1998 $ 18,048 $ (1,301) $ (27) $ (6,330) $ 10,413 =========== ======== =========== =========== =========== BALANCES AT DECEMBER 31, 1998 $ 63,875 $ (6,000) $ (26) $ (17,950) $ 39,937 Issuance of common stock upon exercise of warrants and options 322 323 Issuance of common stock from IPO, net of expenses 127,040 127,048 Issuance of common stock warrants 2,693 2,693 Conversion of preferred stock to common stock -- Deferred stock compensation 19,530 (19,530) -- Amortization for deferred stock compensation 4,747 4,747 Net loss (29,672) (29,672) ----------- -------- ----------- ----------- ----------- BALANCES AT JUNE 30, 1999 $ 213,460 $(20,783) $ (26) $ (47,622) $ 145,075 =========== ======== =========== =========== ===========
See notes to consolidated financial statements. 5 6 NEXTCARD, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands, except per share data) (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------- 1999 1998 --------- --------- OPERATING ACTIVITIES: Net loss $ (29,672) $ (4,444) Adjustments to net loss to arrive at cash used in operating activities: Provision for loan losses 2,042 -- Deprecation and amortization 2,982 64 Amortization of deferred stock 4,747 399 Change in operating assets and liabilities: (Increase) decrease in servicing and profit and loss sharing 907 (163) receivable Decrease in receivable from third party processor -- 500 Increase in accounts payable 1,773 606 Increase in accrued expenses 2,989 390 Increase in prepaid and other assets (4,528) (14) --------- --------- Net cash used in operating activities (18,760) (2,662) --------- --------- INVESTING ACTIVITIES: Net loans originated or collected (142,566) -- Purchase of equipment and leasehold improvements (4,375) (509) --------- --------- Net cash used in investing activities (146,941) (509) --------- --------- FINANCING ACTIVITIES: Net change in secured borrowings 126,629 -- Proceeds from other borrowings 10,000 -- Proceeds from issuance of convertible preferred stock -- 11,671 Proceeds from issuance of common stock, net 127,372 -- Proceeds from equipment loan 1,659 -- Payments made on equipment loan (166) -- --------- --------- Net cash provided by financing activities 265,494 11,671 --------- --------- Net increase in cash and cash equivalents 99,793 8,500 Cash and cash equivalents at the beginning of the period 40,134 2,840 --------- --------- Cash and cash equivalents at the end of the period $ 139,927 $ 11,340 ========= ========= SUPPLEMENTAL DISCLOSURES: Cash paid during the period for interest $ 1,606 $ -- SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Unearned stock based compensation $ 19,530 $ 1,700 Issuance of preferred stock warrants for loan structuring/origination fee $ 2,693 -- Return of convertible preferred stock Series A -- $ 9 Issuance of convertible preferred stock Series C -- $ 11,671
6 7 NEXTCARD, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements include NextCard, Inc. and its wholly owned subsidiary, NextCard Funding Corp. (collectively "the Company"). The Company is an Internet-based provider of consumer credit. INTERIM FINANCIAL STATEMENTS The unaudited interim consolidated financial statements and related unaudited financial information in the footnotes have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial statements. Such interim financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company and the results of its operations and its cash flows for the interim periods. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Form S-1 Registration Statement, as amended, filed with the SEC in connection with the Company's initial public offering ("IPO"). The nature of the Company's business is such that the results of any interim period may not be indicative of the results to be expected for the entire year. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior year financial statements to conform to the 1999 presentation. 2. INITIAL PUBLIC OFFERING On May 19, 1999, the Company completed its IPO, in which it sold 6.9 million shares of its common stock at a price of $20.00 per share, raising $138.0 million in gross proceeds. Offering proceeds to the Company, net of approximately $9.7 million in aggregate underwriters discounts and commissions and $1.3 million in related expenses, were approximately $127.0 million. Immediately prior to the closing of the IPO, the Company's stock split 4.5 shares for every one share of common stock then outstanding. Simultaneously with the closing of the IPO, each outstanding share of the Company's preferred stock automatically converted into 4.5 shares of common stock. In addition, the Company reincorporated from California to Delaware. All share and per share data in the accompanying financial statements have been restated to reflect the conversion, the stock split and the reincorporation. 7 8 3. EARNINGS PER SHARE Basic net loss per common share and diluted net loss per common share are presented in conformity with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), for all periods presented. In accordance with FAS 128, basic and diluted net loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Shares associated with stock options and convertible preferred stock are not included because their inclusion would be antidilutive (i.e., reduce the net loss per share). Pro forma basic and diluted net loss per common share has been computed as described above, and also gives effect, under SEC guidance, to the conversion of the convertible preferred stock (using the if-converted method) from the original date of issuance.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ----------------------- (Dollars in thousands, except per share data) 1999 1998 1999 1998 -------- -------- -------- -------- Net loss available to common stockholders $(18,690) $ (3,070) $(29,672) $ (4,444) ======== ======== ======== ======== Basic and diluted: Weighted average shares of common stock outstanding 26,128 4,895 15,542 9,844 Less: Weighted average shares subject to repurchase (975) (1,925) (1,033) (6,932) -------- -------- -------- -------- Weighted average shares used in computing basic and diluted net loss per common shares 25,153 2,970 14,509 2,912 ======== ======== ======== ======== Basic and diluted net loss per shares $ (0.74) $ (1.03) $ (2.05) $ (1.53) ======== ======== ======== ======== Pro forma: Net loss $(18,690) $ (3,070) $(29,672) $ (4,444) ======== ======== ======== ======== Shares used above 25,153 2,970 14,509 2,912 Pro forma adjustment to reflect weighted effect of assumed conversion of convertible preferred stock 15,951 15,076 24,288 12,082 -------- -------- -------- -------- Shares used in computing pro forma basic and diluted net loss per common share 41,104 18,046 38,797 14,994 ======== ======== ======== ======== Pro forma basic and diluted net loss per common share $ (0.45) $ (0.17) $ (0.76) $ (0.30) ======== ======== ======== ========
8 9 4. ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses for the six month period ended June 30, 1999 is as follows:
(Dollars in thousands) Balance at January 1, 1999 $ -- Provision for loan losses 2,042 Charge-offs (35) ------- Balance at June 30, 1999 $ 2,007 =======
5. CREDIT FACILITIES AND SECURED BORROWINGS In May 1999, the Company entered into a $5.0 million line of credit with a finance company. Borrowings under the line of credit accrue interest at 12.25% per year, are repayable in 36 monthly installments of principal and interest through April 2002 and are secured by a subordinated security interest in all tangible and intangible assets. This line of credit had an outstanding balance of $5.0 million at June 30, 1999. Until January 12, 1999, Heritage Bank of Commerce ("Heritage") funded all of the credit card accounts and loans originated through the Company's website. Beginning January 1999, the Company began purchasing such credit card receivables from Heritage. Until May 21, 1999, the Company utilized a $100.0 million secured borrowing facility extended to NextCard Funding Corp., by Credit Suisse First Boston ("Credit Suisse") to fund the majority of those receivables. On May 21, 1999, the Company executed a $300.0 million commercial paper conduit facility through Barclays Bank PLC and began utilizing this facility to purchase credit card receivables. Borrowings under the facility are secured by the purchased receivables. The Company also used a portion of the Barclays facility to pay off the $87.8 million balance then outstanding under the Credit Suisse facility. As of June 30, 1999, $126.6 million was outstanding under this facility. In addition, on June 23, 1999, the Company entered into a similar facility with ING Barings (U.S.) Capital Markets LLC. This facility amount is $150.0 million, and the Company's borrowings are secured by all credit card receivables that may be purchased by using funds from this facility. As of June 30, 1999, there were no amounts outstanding under the ING Barings facility. 9 10 6. SUBSEQUENT EVENTS On July 15, 1999, the Company exercised its option to purchase all remaining credit card receivables from Heritage for an aggregate purchase price of $22.2 million. On August 4, 1999, the Company signed a definitive agreement to acquire Textron National Bank ("TNB"), a wholly owned indirect subsidiary of Textron Corporation, for $3.0 million (plus TNB's net book value of approximately $2.0 million), with additional $1.0 million payments on each of September 30, 2000 and September 30, 2001. TNB has not actively engaged in the banking business for several years, and at the closing will hold a maximum of $2.6 million of cash and cash-equivalents and a single deposit liability of not more than $600,000. Under the terms of the agreement, TNB will, at the closing, convert into a national bank limited to credit card operations and change its name to "NextBank, National Association" ("NextBank"). As soon as practicable following the closing, the Company intends to cause NextBank to become a member of the Visa system and commence the issuance of NextCard Visa cards, with the NextCard accounts held by NextBank. The credit card receivables generated from these accounts will be funded, in part, by accepting customer deposits. The closing of the transaction is subject to regulatory approval and the satisfaction of certain other conditions. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements regarding intent, belief or current expectations of the Company and its management. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Stockholders and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. Among the factors that could cause actual results to differ materially from those indicated by such forward-looking statements are those factors discussed below. OVERVIEW The Company is a leading Internet-based provider of consumer credit. The Company was the first to offer an online approval system for a Visa(R) card and to provide interactive, customized offers for credit card applicants. The Company combines expertise in consumer credit, an exclusive Internet focus and sophisticated direct marketing techniques with the aim of attracting profitable customer segments on the Internet. The Company's product, the NextCard(R) Visa, which the Company calls the First True Internet Visa, is marketed to consumers exclusively through its website, www.nextcard.com. The Company offers credit card customers a unique combination of convenience, customization, shopping enhancements and online customer service. The NextCard Visa can be used for both online and offline purchases. EARNINGS SUMMARY Net loss for the three months ended June 30, 1999, was $18.7 million, or $0.45 per pro forma share, up 503% from $3.1 million, or $.17 per pro forma share, for the second quarter of 1998. The increase in net loss is the result of increases in interest expense, the provision for loan losses and other operating expenses. These increases were partially offset by increases in net interest income and other operating income. These increases are largely attributable to the growth in average managed loans to $127.6 million for the second quarter 1999 from $5.2 million for the second quarter 1998. Net loss for the six months ended June 30, 1999, was $29.7 million, or $0.76 per pro forma share, up 575% from $4.4 million, or $0.30 per pro forma share, for the six months ended June 30, 1998. The increase in net loss is the result of increases in interest expense, the provision for loan losses and other operating expenses. These increases were partially offset by increases in net interest income and other operating income. These increases are largely 11 12 attributable to the growth in average managed loans to $112.3 million for the six months ended June 30, 1999, from $3.6 million for the same period in 1998. MANAGED LOAN PORTFOLIO Until January 12, 1999, Heritage Bank of Commerce ("Heritage") funded all of the credit card accounts and loans originated through the Company's website pursuant to a Consumer Credit Card Program Agreement. Under that agreement, the Company charged Heritage for origination and servicing of the accounts and shared 50% of the resulting net profits or losses, as defined. Beginning January 1999, the Company began purchasing credit card receivables utilizing secured lending facilities extended to its subsidiary, NextCard Funding Corp. Pursuant to the terms of the Company's Account Origination Agreement with Heritage, Heritage continues to fund newly originated credit card receivables, which are then purchased on a daily basis by NextCard Funding using borrowings from its secured lending facilities. The purchased receivables are pledged as collateral for the secured lending facilities. The Company's managed loan portfolio is comprised of all credit card loan receivables generated under the NextCard Visa and outstanding on Heritage's and the Company's balance sheets. Since Heritage has funded and still owns a portion of the managed loan portfolio, that portion of the credit card loans are not an asset of the Company, and therefore, are not shown on the Company's consolidated balance sheets. The following table summarizes the Company's managed loan portfolio:
(Dollars in thousands) JUNE 30 ---------------------- 1999 1998 -------- -------- PERIOD-END BALANCES Credit card loans: On-balance sheet $142,532 $ -- Heritage owned 20,914 9,402 -------- -------- Total managed loan portfolio $163,446 $ 9,402 ======== ======== AVERAGE BALANCES Credit card loans: On-balance sheet $ 71,123 $ -- Heritage owned 34,764 3,591 -------- -------- Total managed loan portfolio $105,887 $ 3,591 ======== ========
12 13 NET INTEREST INCOME Net interest income consists primarily of interest earned on the Company's cash and investment securities and credit card loans less interest expense on borrowings to fund these earning assets. Net interest income for the three and six months ended June 30, 1999, was $1.2 million and $1.2 million, respectively, compared to $78,000 and $111,000 for the same periods in 1998. These increases were primarily due to $102.9 million and $71.1 million increases in on balance sheet average loans over the comparable periods in 1998 and $77.2 million and $56.5 million increases in average cash and investments over the comparable periods in 1998. The annualized net interest margin on average earning assets for the three months ended June 30, 1999 was 2.5% compared with .08% for the three months ended March 31, 1999. The second quarter net interest margin was favorably impacted by the repricing of the Company's credit card loan portfolio due to the expiration of the introductory rate loans which were outstanding in the first quarter. The second quarter net interest margin was negatively impacted by $225,000 of loan fee amortization expense related to $2.7 million of warrants paid to a finance company in 1999 in connection with a financing transaction. This loan fee is being amortized over a three year period. The annualized negative, net interest spread for the three months ended June 30, 1999 was (1.14%) compared with (2.04%) for the three months ended March 31, 1999. The net interest spread is the annualized yield on average interest-earning assets minus the annualized funding rate on average interest-bearing liabilities. The net interest spread is expected to continue to improve as the Company's loan portfolio grows with higher-yielding loans and the full effects of the Company's more favorable terms on recently negotiated conduit funding facilities are realized. The following tables provide an analysis of interest income and expense, net interest spread, net interest margin and average balance sheet data for the three and six month periods ended June 30, 1999. 13 14 STATEMENTS OF AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (Dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1999 JUNE 30, 1999 ------------------------------------- ------------------------------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE --------- --------- --------- --------- --------- --------- ASSETS: Interest-Earning assets Consumer loans $ 102,944 $ 2,126 8.26% $ 71,123 $ 2,506 7.04% Interest-earning cash 83,486 905 4.34% 61,543 1,185 3.85% --------- --------- --------- --------- --------- --------- Total interest-earning assets 186,430 3,031 6.50% 132,666 3,691 5.56% Allowance for loan losses (1,478) (1,001) Other assets 11,019 8,918 --------- --------- Total assets $ 195,971 $ 140,583 ========= ========= LIABILITIES AND EQUITY Interest-bearing liabilities Borrowings $ 97,772 $ 1,866 7.64% $ 66,138 $ 2,513 7.60% Other liabilities 9,170 7,593 --------- --------- Total liabilities 106,942 73,731 Equity 89,029 66,852 --------- --------- Total liabilities and equity $ 195,971 $ 140,583 ========= ========= NET INTEREST SPREAD (1.14%) (2.04%) --------- --------- Interest income to average interest-earning assets 6.50% 5.56% Interest expense to average interest-earning assets 4.00% 3.79% --------- --------- NET INTEREST MARGIN 2.50% 1.77% --------- ---------
NON-INTEREST INCOME Interchange and other credit card fees consist of income from the Visa system for purchases made with the NextCard Visa and fees paid by the Company's cardholders, such as late fees, overlimit fees and program fees. Such income for the three and six months ended June 30, 1999, was $477,000 and $616,000, respectively. Interchange and other credit card fees are expected to continue to increase in the future as the Company continues to purchase receivables from Heritage and the portfolio grows. Servicing and profit-and-loss sharing income consists of amounts arising under the Consumer Credit Card Program Agreement with Heritage. Such income for the three and six months ended June 30, 1999 increased $6,000 and $176,000, respectively, compared to $130,000 and $164,000 for the same periods in 1998. These increases were attributable to increased credit card accounts and loans originated and outstanding under the Consumer Credit Card Program Agreement in 1999 compared to 1998. However, the Company anticipates servicing and profit-and-loss sharing income to decrease in the 14 15 future because the Company is now purchasing all of the new credit card loan receivables from Heritage under the Account Origination Agreement. NON-INTEREST EXPENSE Total non-interest expense for the three and six months ended June 30, 1999, increased $16.1 million and $25.0 million, respectively, over the comparable periods in 1998, primarily due to employee compensation, credit card activation and servicing costs and marketing expenses. Employee compensation increased due to staffing needs to support the increase in credit card accounts and other functions. In addition, the amortization of deferred compensation, which represents the difference between the exercise price of certain stock options grants and the estimated fair value of the Company's common stock at the time of such grants, for the three and six months ended June 30, 1999 was $3.4 million and $4.7 million. The increase in credit card activation and servicing costs was largely due to the increased number of credit card accounts, transaction volumes and loan balances. The increase in other expenses is primarily due to general growth in the business lines and building an infrastructure to support the growth. ASSET QUALITY The Company's delinquency and net loan charge-off rates reflect, among other factors, the credit risk of loans, the average age of the Company's credit card account portfolio, the success of the Company's collection and recovery efforts and general economic conditions. Additionally, the credit risk of the loans is impacted by the underwriting criteria utilized by the Company to approve new customers. The average age of the Company's credit card portfolio affects the level and stability of delinquency and loss rates of the portfolio. The Company continues to focus its resources on refining its credit underwriting standards for new accounts, as well as on collections and post charge-off recovery efforts, to minimize net losses. At June 30, 1999, the entire loan portfolio was less than 18 months old. Accordingly, the Company believes that its loan portfolio will experience increasing or fluctuating levels of delinquency and loan losses as the average age of the Company's accounts and balances increase. This trend is reflected in the change in the Company's net charge-off ratio. For the quarter ended June 30, 1999, the Company's managed net charge-off ratio was 1.34% compared to 0.23% for the quarter ended June 30, 1998. For the six months ended June 30, 1999 the net charge-off ratio stood at 1.07% compared to 0.17% for the six months ended June 30, 1998. The Company believes, consistent with its statistical models and other credit analyses, that this rate will continue to fluctuate but generally rise over the next year as the portfolio ages and becomes more seasoned. 15 16 The Company's primary strategy for managing loan losses is the development of underwriting criteria and credit scoring algorithms to assess the credit-worthiness of new accounts and provide conservative credit-line assignments. In addition, the Company monitors credit lines closely, and has built a collections department, as well as using outside parties, to manage delinquent loans. Individual accounts and their related credit lines are also continually managed using various marketing, credit and other management processes in order to continue to maximize the profitability of accounts. DELINQUENCIES Delinquency levels are monitored on a managed basis, since delinquency on either an owned or managed basis exposes the Company to loss exposure either directly or through the Heritage profit-and-loss sharing arrangement. A credit card account is contractually delinquent if the minimum payment is not received by the specified date on the cardholder's statement. It is the Company's policy to continue to accrue interest and fee income on all credit card accounts, except in limited circumstances, until the account and all related loans, interest and other fees are reversed. Credit card loans are generally charged off when the loan becomes contractually delinquent 180 past due, with the exception of bankrupt accounts, which are charged off no later that the month after formal notification of bankruptcy. The following table presents the delinquency trends of the Company's credit card loan portfolio on a managed portfolio basis:
JUNE 30 ---------------------------------------------------- (Dollars in thousands) 1999 1998 ------------------------- ------------------------- LOANS % OF TOTAL LOANS % OF TOTAL ----------- ----------- ----------- ----------- Managed loan portfolio $ 163,446 100.00% $ 9,402 100.00% Loans delinquent: 31 - 60 days 951 0.58% 27 0.29% 61 - 90 days 445 0.27% 3 0.03% 91 or more 563 0.35% 0 0.00% ----------- ----------- ----------- ----------- Total $ 1,959 1.20% 30 0.32% =========== =========== =========== ===========
NET CHARGE-OFFS Net charge-offs include the principal amount of losses from cardholders unwilling or unable to pay their loan balances, as well as bankrupt and deceased cardholders, less current period recoveries. Net charge-offs exclude finance charges and fees, which are charged against the related income at the time of charge-off. Losses from new account fraud and fraudulent cardholder activity are included in non-interest expense. 16 17 The following table presents the Company's net charge-offs for the periods indicated as reported in the consolidated financial statements and on a managed portfolio basis:
(Dollars in thousands) THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- ON-BALANCE SHEET: Average loans outstanding $ 102,944 $ -- $ 71,123 $ -- Net charge-offs 34 -- 34 -- Net charge-offs as a percentage of average loans outstanding 0.13% 0.00% 0.10% 0.00% MANAGED: Average loans outstanding 127,595 5,228 112,328 $ 3,591 Net charge-offs 426 3 601 3 Net charge-offs as a percentage of average loans outstanding 1.34% 0.23% 1.07% 0.17%
PROVISION AND ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained for on-balance sheet loans. For loans maintained on Heritage's balance sheet, anticipated losses and related reserves are reflected in the calculations of the servicing and profit-and-loss sharing income from Heritage. Provisions for loan losses are made in amounts necessary to maintain the allowance at a level estimated to be sufficient to absorb probable losses inherent in the existing on-balance sheet loan portfolio. The provision for loan losses for on-balance sheet loans for the three and six months ended June 30, 1999, totaled $1.0 million and $2.0 million, respectively. The Company anticipates that the provision for loan losses will increase as the credit card loan portfolio continues to increase and season. The following table presents the change in the Company's allowance for loan losses for the periods presented:
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1999 1999 --------------- --------------- (Dollars in thousands) Balance at beginning of period $ 995 $ -- Provision for loan losses 1,047 2,042 Charge-offs (35) (35) --------------- --------------- Balance at end of period $ 2,007 $ 2,007 =============== ===============
17 18 LIQUIDITY AND CAPITAL RESOURCES The Company finances the growth of its credit card loan portfolio through cash flow from operations, secured bank financings, conduit facilities and equity issuance. As of June 30, 1999, the Company had $139.9 million of cash and cash equivalents, of which $127.0 million had been obtained through the Company's IPO in May 1999. Until January 12, 1999, Heritage funded all of the credit card accounts and loans originated through the Company's website. Beginning January 1999, the Company began purchasing such credit card receivables from Heritage. Until May 21, 1999, the Company utilized a $100.0 million secured borrowing facility extended to NextCard Funding Corp., by Credit Suisse to fund the majority of those receivables. On May 21, 1999, the Company executed a $300.0 million commercial paper conduit facility through Barclays Bank PLC and began utilizing this facility to purchase credit card receivables. Borrowings under the facility are secured by the purchased receivables. The Company also used a portion of the Barclays facility to pay off the $87.8 million balance then outstanding under the Credit Suisse facility. As of June 30, 1999, $126.6 million was outstanding under this facility. In addition, on June 23, 1999, the Company entered into a similar facility with ING Barings (U.S.) Capital Markets LLC. This facility amount is $150.0 million, and the Company's borrowings are secured by all credit card receivables that may be purchased by using funds from this facility. As of June 30, 1999, there were no amounts outstanding under the ING Barings facility. The Company will have the ability to fund new receivables during the revolving period of these structures. After the revolving period, principal collections generated by the receivables will be used to pay the principal amount owed. The revolving period ends in June 2001 for the Barclays facility and in January 2002 for the ING Barings facility. In May 1999, the Company entered into a $5.0 million line of credit with a finance company for general corporate purposes. Borrowings under the line of credit accrue interest at 12.25% per year, are repayable in 36 monthly installments of principal and interest through April 2002 and are secured by a subordinated security interest in all tangible and intangible assets. This line of credit had an outstanding balance of $5.0 million at June 30, 1999. 18 19 YEAR 2000 COMPLIANCE Many existing computer programs use only two digits to identify a year. These programs were designed and developed without addressing the impact of the upcoming change in the century. If not corrected, many computer software applications could fail or create erroneous results by, at or beyond the year 2000. We use internally developed software, as well as computer technology and other services provided to us by third-party vendors that may fail due to the year 2000 phenomenon. For example, the Company is dependent on a service bureau for account processing and other customer functions. The Company is also dependent on telecommunications vendors to maintain its network and a third party that hosts our servers. As the Company was formed less than three years ago, the Company developed its systems and technology in light of the year 2000 problem, as opposed to many older companies that rely on legacy systems designed before this problem was known. On April 30, 1999, the Company completed its initial review and testing of year 2000 compliance for all of its internally developed software, which include substantially all of the systems for the operation of its website, such as its instant online approval system, customer interaction and transaction systems and our security, monitoring and back-up capabilities. Based on such testing, the Company believes its internally developed software and systems are year 2000 compliant, which means that all date data will process without error, interruption or loss of functionality of any software or system due to the change in century. On April 16, 1999, the Company completed its assessment of the year 2000 readiness of its third-party supplied software and hardware, and of its vendors. During the assessment phase, eleven vendors were identified as critical to the Company, all of whom have provided the Company with certifications of year 2000 compliance or a readiness disclosure statement. Testing (including leap year testing) of our systems with those of First Data Resources, a third-party supplier of certain fulfillment and customer service functions and provide of online customer service capabilities, is presently expected to be completed by August 1999. However, based on the results of preliminary testing of all affected systems, the Company believes that the systems will be year 2000 compliant. Accordingly, based on the results of the responses the Company has received and the availability of alternate year 2000 compliant vendors, the Company does not believe further remediation planning is necessary to ensure seamless operation at and after January 1, 2000. If a year 2000 problem with one of the Company's vendor's systems causes such vendor to fail to provide the Company services it had agreed to provide the Company, the Company would seek to recover from such vendor damages for the amount it suffered due to such failure. The Company would base its suit on breach of the vendor's agreement with it and misrepresentation of such vendor's year 2000 representation to it. However, there can be no assurance that such agreements and such representations will be enforceable. 19 20 Based on the results of our testing, the Company believes our worst-case scenario would be the failure of the Internet infrastructure due to a year 2000 problem. The year 2000 readiness of the general infrastructure necessary to support our operations is difficult to assess. For instance, the Company depends on the general availability of the Internet to provide its services. The Company also depends on the year 2000 compliance of the computer systems and financial services used by consumers. A significant disruption in the ability of consumers to reliably access the Internet or portions of it or to use their credit cards would have an adverse effect on demand for the Company's services and could have a material adverse effect on the Company's growth. To date, the Company has incurred approximately $225,000 of expense relating to year 2000 analysis, testing and remediation efforts. The Company anticipates that, when all analysis, testing and remediation efforts are complete, it will have incurred approximately $400,000 of expenses, all of which will be recognized in 1999. However such expenses could be significantly higher than anticipated by the Company. 20 21 ADDITIONAL FACTORS WHICH MAY AFFECT FUTURE RESULTS As discussed in the Company's Registration Statement, as filed with the SEC in connection with the Company's IPO, the following additional risk factors could materially affect the Company's business, operating results and financial condition. RISKS RELATED TO THE COMPANY'S BUSINESS THE COMPANY'S LIMITED OPERATING HISTORY MAKES EVALUATION OF ITS BUSINESS AND PROSPECTS DIFFICULT. The Company was formed in June 1996. The Company introduced the NextCard Visa in December 1997. The Company has only a limited operating history on which to base an evaluation of the Company's business and prospects. The Company's business and prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as the market for Internet products and services. THE COMPANY HAS A HISTORY OF LOSSES AND IT ANTICIPATES SIGNIFICANT FUTURE LOSSES. The Company incurred net losses of $1.9 million for the period from the Company's inception through December 31, 1997, $16.1 million for the year ended December 31, 1998 and $29.7 million for the six months ended June 30, 1999. As of June 30, 1999, the Company had an accumulated deficit of $47.6 million. To date, the Company has not achieved profitability and expects to incur significant and increasing net losses for the next three years. The Company intends to continue to invest significantly in marketing, operations, technology and the development of statistical analyses. As a result, the Company will need to generate significant revenues to achieve profitability. The Company cannot be certain that it will be able either to maintain the Company's recent revenue growth rates or to generate adequate revenues to achieve profitability. If the Company does achieve profitability, the Company cannot be certain that it can sustain or increase profitability on a quarterly or annual basis in the future. THE COMPANY'S LIMITED OPERATING HISTORY MAKES ITS FINANCIAL FORECASTING DIFFICULT. Due to the Company's limited operating history, it cannot forecast operating expenses based on its historical results. Accordingly, the Company bases its operating expenses, in part, on future revenue projections. Most of these expenses are fixed in the short term and the Company may not be able to quickly reduce spending if it achieves lower than anticipated revenues. The Company's ability to accurately forecast its revenues is limited. If the Company's revenues do not meet its internally developed projections, the Company's net losses will be even greater than anticipated and the Company's business, operating results and financial condition may be materially and adversely affected. 21 22 THE COMPANY'S CREDIT CARD PORTFOLIO MAKES ITS PREDICTION OF DELINQUENCY AND LOSS LEVELS DIFFICULT. As of June 30, 1999, over 70% of the Company's credit card accounts had been generated in the past twelve months. As a result, the Company cannot accurately predict the levels of delinquencies and losses that can be expected from its loan portfolio over time. As the Company's portfolio of accounts becomes more seasoned, the level of losses may increase. Any material increase in delinquencies or losses above the Company's expectations could materially and adversely impact the Company's results of operations and financial condition. THE COMPANY MAY BE UNABLE TO RETAIN CUSTOMERS WHEN IT INCREASES ITS INTRODUCTORY INTEREST RATES. To attract new customers, the Company generally offers low introductory interest rates that increase after expiration of the introductory period. Given the Company's limited operating history, it does not know what percentage of its customers will continue to use their NextCard Visa after the end of this period. If fewer customers than it expects continue to use their NextCard Visa after the expiration of the introductory offer, the Company's results of operations would be adversely affected. THE COMPANY MAY ENCOUNTER DIFFICULTIES DUE TO ITS UNTESTED CUSTOMER BASE. The Company targets its credit card products to Internet users. Lenders historically have not solicited this market to the same extent as more traditional market segments. As a result, there is less historical experience with respect to the credit risk and performance of these consumers. The Company may not be able to successfully target and evaluate the creditworthiness of such consumers to manage the expected delinquencies and losses or to appropriately price the Company's products. In addition, the Company may consider using additional internally developed criteria to enhance or replace its existing criteria. The Company has limited experience developing and implementing such credit criteria. As a result, as compared to issuers targeting traditional market segments, the Company could experience any or all of the following: - - a greater number of customer payment defaults or other unfavorable cardholder payment behavior; - - an increase in fraud by the Company's cardholders and third parties; and - - changes in the traditional patterns of cardholder loyalty and usage. In addition, because the Company is targeting a new customer base, the Company has comparatively little information about the potential size of its target market, its customer usage patterns and other factors that could significantly affect the demand for the Company's products and services. Moreover, general economic factors, such as the rate 22 23 of inflation, unemployment levels and interest rates may affect the Company's target market customers more severely than other market segments. FLUCTUATIONS IN THE COMPANY'S QUARTERLY REVENUES AND OPERATING RESULTS MAY AFFECT THE PRICE OF ITS COMMON STOCK. Quarterly fluctuations in the Company's earnings could adversely affect the market price of the Company's common stock. The Company's revenue consists of the finance charges paid by the Company's customers based on their outstanding balances, the amounts received through the Visa system based upon a percentage of the Company's customers' purchases and the fees paid by the Company's customers. As a result, the Company depends substantially on the level of customer balances, the level of interest rates on the Company's credit card portfolios and the volume of NextCard Visa purchases. Variations of such factors could affect the Company's quarterly revenues. Any shortfall in the Company's revenue would have a direct impact on the Company's operating results for a particular quarter. The Company's quarterly operating results may fluctuate significantly as a result of a variety of factors, many of which are outside the Company's control. These factors include: - - the volume of credit card loans generated from the Company's products and the Company's ability to successfully manage its credit card loan portfolio; - - the announcement or introduction of new websites, services and products by us or the Company's competitors and the level of price competition for the products and services we offer; - - the amount and timing of the Company's operating costs and capital expenditures relating to the expansion of the Company's business, operations and infrastructure; - - technical difficulties, system downtime, Internet service problems and the Company's ability to expand and upgrade the Company's computer systems to handle increased traffic; - - the success of the Company's brand building, advertising and marketing campaigns; and - - general economic conditions, including interest rate volatility, and economic conditions specific to the Internet, online commerce and the credit card industry. 23 24 THE COMPANY MAY BE UNABLE TO SATISFACTORILY FUND ITS WORKING CAPITAL REQUIREMENTS. If the Company's current funding becomes insufficient to support future operating requirements, the Company will need to obtain additional funding either by increasing the Company's lines of credit or by raising additional debt or equity from the public or private capital markets. There can be no assurance that such additional funding will be available on terms attractive to the Company, or at all. Failure by the Company to raise additional funding when needed could have a material adverse effect on the Company's business, results of operations and financial condition. If additional funds are raised through the issuance of equity securities, the ownership percentage of the Company's then-current stockholders would be reduced. Furthermore, such equity securities might have rights, preferences or privileges senior to those of the Company's common stock. THE COMPANY'S CUSTOMERS MAY BECOME DISSATISFIED BY SYSTEM DISRUPTIONS. The Company's website has in the past experienced, and may in the future experience, slower than normal response times or other problems, such as system unavailability. Customers may become dissatisfied by any system failure that interrupts or delays the Company's ability to provide the Company's services to them. Any interruption or delay in the Company's operations could materially and adversely affect the Company's business. If the number of users of the Company's website increases substantially, the Company will need to significantly expand and upgrade the Company's technology, transaction processing systems and network infrastructure. The Company's website must accommodate a high volume of users and deliver frequently updated information. The number of visitors and credit card applicants to the Company's website has increased substantially since it introduced the NextCard Visa, and it anticipates that this traffic will further increase over time. However, it is difficult to predict the future traffic on the Company's website. Marketing efforts and other events, such as publicity resulting from this offering, could cause traffic to strain the Company's site's capacity. The Company does not know whether it will be able to accurately project the rate or timing of any traffic increases, or expand and upgrade the Company's systems and infrastructure to accommodate such increases in a timely manner. The Company's systems and operations also are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, computer viruses, acts of vandalism and similar events. As the Company currently does not have back-up systems for most aspects of its operations, a failure of a single aspect of the Company's system could cause interruption or delay in the Company's entire operations. It does not carry sufficient business interruption insurance to compensate for losses that could occur. THE COMPANY MAY BE UNABLE TO SATISFACTORILY FUND ITS LOAN PORTFOLIO. The Company's primary source of funding is the securitization of its credit card loan portfolio through commercial paper conduit facilities. Securitization transactions involve the sale of beneficial interests in credit card loan balances. Until now, the Company has completed securitization transactions on terms that it believes are favorable. The availability of securitization funding, however, depends on how difficult and expensive such funding is. Securitizations can be affected by many factors, such as whether a third party will be willing to provide credit enhancement and the rates at which accountholders have repaid their balances in the past. In addition, legal, regulatory, accounting and tax changes can make securitization funding more difficult, more expensive or unavailable on any terms. Securitizations may not always offer the Company attractive funding, and the Company may have to seek other more expensive funding sources in the future. In general, the amount, type and cost of the Company's financing affects the Company's financial results. Changes within the Company's organization and changes in the activities of parties the Company has agreements or understandings could make the financings available to the Company more difficult, more expensive or unavailable on any terms. If the Company successfully creates NextBank, its strategy will be to fund a portion of its loan portfolio through short-term deposits received by NextBank. The Company may not be able to attract or retain sufficient deposits at attractive interest rates to fund its loan portfolio through NextBank. Moreover, if adequate capital is not available, the Company also may be subject to an increased level of regulatory supervision that would have an adverse effect on our operating results and financial condition. THE COMPANY DEPENDS ON A LIMITED NUMBER OF VENDORS FOR ESSENTIAL SERVICES. 24 25 The Company relies on a number of services furnished to itself by either a single vendor or a limited number of vendors. For example, all of the NextCard Visa credit cards generated on the Company's website are issued by Heritage in accordance with an account origination agreement. Under the agreement, Heritage issues credit cards to each applicant who qualifies under specified credit card guidelines. Heritage's obligation to establish new credit card accounts terminates on December 31, 1999. If successfully created, NextBank, a proposed wholly owned subsidiary of the Company, would replace Heritage as the issuer of the NextCard Visa. If the Company is not successful in creating NextBank on a timely basis, the Company's failure to extend the Company's arrangement with Heritage or enter into an alternative arrangement would have a material adverse effect on it. The Company also depends, directly and indirectly, on other key third party vendors to provide essential services. Any interruption, deterioration or termination in these third-party services could be disruptive to the Company's business. In the event that any of the Company's agreements with any of these third parties is terminated, it may not be able to find an alternative source of support on a timely or commercially reasonable basis, if at all. As a result, any such interruption, deterioration or termination would have a material adverse effect on the Company's results of operations and financial condition. THE COMPANY MAY BE ADVERSELY AFFECTED IF IT FAILS TO ATTRACT AND RETAIN KEY PERSONNEL. The Company's success depends largely on the skills, experience and performance of certain key members of the Company's management. If it loses one or more of these key employees, particularly Jeremy Lent, the Company's Chairman of the Board, President and Chief Executive Officer, the Company's business, operating results and financial condition would be materially adversely affected. The Company's success also depends on the Company's continued ability to attract, retain and motivate highly skilled employees. Competition for employees both for Internet-based businesses and for financial services businesses is intense, particularly for personnel with technical training and experience. The Company may be unable to retain its key employees or to attract, assimilate or retain other highly qualified employees in the future. The Company has from time to time in the past experienced, and it expects to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. THE COMPANY MAY BE UNABLE TO EFFECTIVELY MANAGE THE RAPID GROWTH IN ITS OPERATIONS. Since the introduction of the Company's NextCard Visa product in December 1997, it has experienced rapid growth in the Company's operations. From December 31, 1997 through June 30, 1999, we grew from approximately 18 to 215 employees, and the Company's loans under management increased from $0 to $163.4 million. The Company is planning for continued rapid growth of its operations. This growth requires the Company to expand its marketing, customer service and support, credit and technology organizations. There can be no assurance that it will be able to attract and retain sufficient numbers of personnel to satisfy the Company's anticipated growth. In particular, as the Company relies heavily on temporary personnel to satisfy its growing personnel 25 26 demands, the Company may be unable to continue to attract and retain a sufficient number of temporary employees to support its future growth. Rapid growth places a significant strain on the Company's financial reporting, information and management systems and resources. The Company's business, results of operations and financial condition will be materially and adversely affected if it is unable to effectively manage its expanding operations. For example, if the Company is unable to maintain and scale the Company's financial reporting and information systems, it may not have access to adequate, accurate and timely financial information. THE COMPANY MAY NOT SUCCESSFULLY DEVELOP NEXTCARD AS A BRAND. The dynamics of a brand name have traditionally worked differently in the credit card market than in many other industries. In the credit card market, consumers have responded more to the brand name of Visa or MasterCard(R) than to the identity of the issuer. The Internet may change the underlying market dynamics for brand recognition as compared to the offline market. Accordingly, the Company is aggressively implementing its marketing plan to establish brand recognition with Internet users to persuade customers to switch to the Company's products and services, particularly because it competes, or expects to compete, with larger financial institutions that have well-established brand names. The Company can provide no assurances that it will successfully develop the Company's brand name. If the brand name of online credit card issuers becomes important, and if other credit card issuers begin to compete with us for online brand name recognition, the Company's business, results of operations and financial condition could be materially adversely affected. RISKS RELATED TO THE COMPANY'S INDUSTRY THE COMPANY'S PERFORMANCE WILL DEPEND ON THE GROWTH OF THE INTERNET AND INTERNET COMMERCE. The Company's future success depends heavily on the overall continued growth and acceptance of the Internet, including its use in electronic commerce. If Internet usage or commerce does not continue to grow or grows more slowly than expected, the Company's business, operating results and financial condition will be adversely affected. Consumers and businesses may reject the Internet as a viable medium for a number of reasons. These include potentially inadequate network infrastructure, slow development of enabling technologies and insufficient commercial support. The Internet infrastructure may not be able to support the demands placed on it by increased Internet usage and bandwidth requirements. In addition, delays in the development or adoption of new standards and procedures required to handle increased levels of Internet activity, or increased government regulation, could cause the Internet to lose its viability as a commercial medium. Even if the required infrastructure, standards, procedures or related products, services and facilities are developed, we may incur substantial expenses adapting the Company's solutions to changing or emerging technologies. 26 27 THE COMPANY'S PERFORMANCE WILL DEPEND ON THE CONTINUED GROWTH OF THE FINANCIAL SERVICES MARKET. The Company's business would be adversely affected if the growth in Internet financial products and services does not continue or is slower than expected. Although the Company believes the Internet has the potential to transform the delivery of consumer financial products, consumers' acceptance of recently introduced financial products and services is at an early stage and is subject to a high level of uncertainty. To date, there exist relatively few proven online financial institutions. Although the Company's long-term vision is to redefine the banking experience for the Internet consumer, presently it offers only a single product, the NextCard Visa, and it has no specific plans for additional products. In addition, as the online financial services industry matures, government-imposed regulations could become so stringent that the Company may be economically precluded from offering online financial products and services. INTENSE AND INCREASING COMPETITION IN FINANCIAL SERVICES COULD HARM ITS BUSINESS. The financial services market is rapidly evolving and intensely competitive. The Company operates in this intensely competitive environment with a number of other companies, many of whom have significantly longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. Some of the Company's competitors may be able to obtain funding at a more favorable rate than it can obtain. The Company's business model anticipates that it will derive a large majority of the Company's revenue from the interest charged on credit card balances contained in the portfolio of loans it holds. Increased competition could require the Company to reduce the interest rates it charges on the Company's customers' balances. This could have a material adverse effect on the Company's business, results of operations and financial condition. Other credit card issuers and traditional commercial banks may increasingly compete in the online credit card market. In addition, existing Internet providers and new Internet entrants may launch new websites using commercially available software. While the credit card market traditionally has been very fragmented, the Internet could change traditional market dynamics and enable new competitors to rapidly acquire significant market share. The Company's competitors may respond more quickly than we can to new or emerging technologies and changes in customer requirements. They may be able to: - - devote greater resources than the Company can to the development, promotion and sale of their products and services; - - replicate the Company's products and services; - - engage in more extensive research and development; 27 28 - - undertake farther-reaching marketing campaigns; - - adopt more aggressive pricing policies; - - make more attractive offers to existing and potential employees and strategic partners; - - more quickly develop new products and services or enhance existing products and services; - - bundle consumer products and services in a manner that the Company cannot provide; and - - establish cooperative relationships among themselves or with third parties, including large Internet participants, to increase the ability of their products and services to address the needs of the Company's prospective customers. The Company cannot assure that it will be able to compete successfully or that competitive pressures will not materially and adversely affect the Company's business, results of operations or financial condition. OUR OPERATING RESULTS ARE SUBJECT TO INTEREST RATE FLUCTUATIONS. A majority of the Company's revenues are generated by the interest rates it charges on outstanding receivable balances. At the same time, the Company's borrowings costs under the Company's commercial paper conduit facilities are generally indexed to variable commercial paper rates. Thus, changes in the prevailing interest rates could materially adversely affect the Company's results of operations and financial condition. See "Quantitative and Qualitative Disclosures About Market Risk." THE COMPANY MAY BE UNABLE TO INTRODUCE NEW SERVICES, FEATURES AND FUNCTIONS. The Internet and related financial institutions marketplaces are characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing customer demands. The Company's future success will depend on the Company's ability to adapt to rapidly changing technologies and to enhance existing products and services, as well as to develop and introduce a variety of new products and services to address the Company's customers' changing demands. The Company may experience difficulties that delay or prevent the successful design, development, introduction or marketing of the Company's products and services. In addition, material delays in introducing new products and services and enhancements may cause customers to forego purchases of the Company's products and services and purchase instead those of the Company's competitors. SECURITY BREACHES COULD DAMAGE THE COMPANY'S REPUTATION AND BUSINESS. The secure transmission of confidential information over the Internet is essential to maintain consumer and supplier confidence in the NextCard service. Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology used by us to protect customer transaction data. A party that is able to circumvent the Company's security systems could steal proprietary information or cause interruptions in the Company's operations. Security breaches could damage the Company's reputation and expose us to a risk of loss or litigation. The Company's insurance policies carry low coverage limits, which may not be adequate to 28 29 reimburse us for losses caused by security breaches. The Company cannot guarantee that its security measures will prevent security breaches. Consumers generally are concerned with security and privacy on the Internet and any publicized security problems could inhibit the growth of the Internet as a means of conducting commercial transactions. The Company's ability to provide financial services over the Internet would be severely impeded if consumers become unwilling to transmit confidential information online. As a result, the Company's operations and financial condition would be materially adversely affected. THE COMPANY MAY FACE INCREASED GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES. To date, communications and commerce on the Internet have not been highly regulated. However, Congress has held hearings on whether to regulate providers of services and transactions in the electronic commerce market. It is possible that Congress or individual states could enact laws regulating Internet banking that address issues such as user privacy, pricing and the characteristics and quality of products and services. Any restrictions on the collection and use of such consumer information over the Internet could adversely affect the Company's direct marketing efforts. In addition, several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet service providers in a manner similar to long distance telephone carriers and to impose access fees on these companies. This could increase the cost of transmitting data over the Internet. Moreover, it may take years to determine the extent to which existing laws relating to issues such as property ownership, libel and personal privacy are applicable to the Internet. Any new laws or regulations relating to the Internet could adversely affect the Company's business. The Company's business is subject to extensive federal and state regulation, including regulation under consumer protection laws. If the Company successfully forms NextBank, it would be subject to regulation under federal and California banking laws as well as regulatory supervision from the Office of the Comptroller of the Currency, or OCC, and the Federal Deposit Insurance Corporation (the "FDIC"). As an affiliate of NextBank, the Company will also will be subject to oversight by the OCC and FDIC. Existing and future legislation and regulatory supervision could have a material adverse effect on the Company's business, including the Company's credit and authentication policies, pricing and products. NextBank also will be subject to minimum capital, funding and leverage requirements prescribed by federal statute and OCC regulations or orders. If NextBank fails to meet these regulatory capital requirements, NextBank will be subject to additional restrictions that could have a material adverse effect on the Company's ability to conduct normal operations and possibly result in the seizure of NextBank by government regulators under certain circumstances. The Company's ability to maintain or increase NextBank's capital levels in the future will be subject to, among other things, general economic conditions, the Company's ability to raise new capital and the Company's ability and willingness to make additional capital contributions to NextBank or a related institution. 29 30 THE COMPANY MAY FACE DIFFICULTIES PROTECTING AND ENFORCING ITS INTELLECTUAL PROPERTY RIGHTS. The Company's success and ability to compete are substantially dependent on the Company's proprietary technology and trademarks, which we attempt to protect through a combination of patent, copyright, trade secret and trademark laws as well as confidentiality procedures and contractual provisions. However, any steps the Company takes to protect the Company's intellectual property may be inadequate, time consuming and expensive. Furthermore, despite the Company's efforts, it may be unable to prevent third parties from infringing upon or misappropriating the Company's intellectual property. Any such infringement or misappropriation could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the Company may infringe upon the intellectual property rights of third parties, including third party rights in patents that have not yet been issued. Any such infringement, or alleged infringement, could have a material adverse effect on the Company's business, results of operations and financial condition. The Company has filed three patent applications and applied to register several of the Company's trademarks in the United States. The Company cannot assure that the Company's patent applications or trademark registrations will be approved. Moreover, even if approved, they may not provide the Company with any competitive advantages or may be challenged by third parties. Legal standards relating to the validity, enforceability and scope of intellectual property rights in Internet-related industries are uncertain and still evolving, and the future viability or value of any of the Company's intellectual property rights is uncertain. Any litigation surrounding such rights could force the Company to divert important financial and other resources away from the Company's business operations. The Company collects and utilizes data derived from applications on the NextCard website and through transactions made using the Company's products. Although the Company believes that it has the right to use such data and compile such data in the Company's database, it cannot assure that any intellectual property protection will be available for such information. In addition, third parties may claim rights to such information. The Company has licensed, and may license in the future, elements of the Company's trademarks, trade dress and similar proprietary rights to third parties. While it attempts to ensure that the quality of the Company's brand is maintained by such business partners, such partners may take actions that could materially and adversely affect the value of the Company's proprietary rights or the Company's reputation. This could, in turn, have a material adverse effect on the Company's business, results of operations and financial condition. 30 31 PROTECTION OF THE COMPANY'S DOMAIN NAME IS UNCERTAIN. The Company currently holds the domain name nextcard.com. The regulations governing the acquisition and maintenance of domain names are subject to change. Governing bodies could, among other things, modify the requirements for holding domain names. Accordingly, the Company may be unable to acquire or maintain the Company's domain name in all jurisdictions in which it would otherwise seek to do so. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, the Company may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of the Company's domain name, trademarks and other proprietary rights. 31 32 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in market prices and rates. The Company's principal market risk is due to changes in interest rates. This affects the Company directly in its lending and borrowing activities, as well as indirectly as interest rates may impact the payment performance of the Company's cardholders. The majority of the Company's revenues are generated by the interest rates it charges on outstanding receivable balances in the form of finance charges. The Company's receivables generally yield either a variable interest rate indexed to the prime rate, or a fixed interest rate, set independently of market interest rates. Accordingly, fluctuations in interest rates will affect the Company's revenues. At the same time, the Company's borrowing costs under the Company's commercial paper conduit facilities are generally indexed to variable commercial paper rates, and may also fluctuate based on general interest rate fluctuations. A rise in the Company's borrowing costs may not be met by a corresponding increase in revenues generated by finance charges. Likewise, a decrease in revenues generated by finance charges may not be met by a corresponding decrease in borrowing costs. Thus, either a rise or a fall in the prevailing interest rates could materially adversely affect the Company's results of operations and financial condition. To manage the Company's direct risk to market interest rates, management actively monitors the interest rates and the interest sensitive components of the Company's balance sheet to minimize the impact changes in interest rates have on the fair value of assets, liabilities, net income and cash flow. Management seeks to minimize the impact of changes in interest rates on the Company primarily by matching assets and liability repricings. The Company's fixed interest rate credit card receivables have no stated maturity or repricing period. However, the Company generally has the right to increase rates when the customer fails to comply with the terms of the account agreement. In addition, the Company's credit card receivables may be repriced by the Company upon providing the required prior notice to the customer, which is generally no more that 30 days. The Company may manage its interest rate risk through interest rate hedging techniques. However, the Company currently does not use such techniques and it may not be successful in reducing or eliminating the Company's interest rate risk in the future. 32 33 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any lawsuit that, taken separately or collectively, if decided adversely would be likely to have a material, adverse effect on its business, financial prospects or results of operations. ITEM 2. CHANGES IN SECURITIES On May 19, 1999, the Company completed its IPO in which it sold 6.9 million shares of its common stock, $0.001 par value. The managing underwriters in the offering were Donaldson, Lufkin & Jenrette Securities Corporation, Thomas Weisel Partners LLC and, U.S. Bancorp Piper Jaffray. The shares of common stock sold in the offering were registered under the Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (Reg. No. 333-74755) that was declared effective by the SEC on May 14, 1999. The 6.9 million shares of common were sold at a price of $20.00 per share for gross proceeds of $138.0 million. Offering proceeds to the Company, net of approximately $9.7 million in aggregate underwriter discounts and commissions and $1.3 million in other related expenses, were approximately $127.0 million. The Company intends to use the net proceeds to finance its credit card receivables under its secured borrowing facilities, capitalize NextBank, when, and if, NextBank commences operations, and for marketing. In addition, the Company will use the balance of the net proceeds for working capital, including certain acquisition costs related to originating credit card receivables, interest expense under borrowing facilities and general corporate overhead expense. None of the net proceeds of the offering were paid by the Company, directly or indirectly, to any director, officer or general partner of the Company or any of their associates, or to any persons owning 10% or more of any class of the Company's equity securities, or to any affiliates of the company. Immediately prior to the closing of the IPO, the Company's stock split 4.5 shares for every one share of common stock then outstanding. Simultaneously with the closing of the IPO, each outstanding share of the Company's preferred stock automatically converted into 4.5 shares of common stock. In addition, the Company reincorporated from California to Delaware. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable 33 34 ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS Immediately prior to its IPO, the Company's shareholders unanimously approved the Company's reincorporation from California to Delaware and in connection therewith, a 4.5-to-1 split of the Company's common stock. The Company's shareholders also adopted an Employee Stock Purchase Plan and approved an expansion of the Company's 1997 Stock Plan. ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:
Exhibit Number Description ------ ----------- 10.1+ Amended and Restated Pooling and Servicing Agreement, dated as May 21, 1999, among NextCard Funding Corp, as Transferor, NextCard, Inc., as Servicer, and The Bank of New York, as Trustee. 10.2+ Series 1999-1 Supplement, dated as of May 21, 1999, to the Amended and Restated Pooling and Servicing Agreement, among NextCard Funding Corp, as Transferor, NextCard, Inc., as Servicer, and The Bank of New York, as Trustee. 10.3+ Series 1999-2 Supplement, dated as of May 21, 1999, to the Amended and Restated Pooling and Servicing Agreement, among NextCard Funding Corp, as Transferor, NextCard, Inc., as Servicer, and The Bank of New York, as Trustee. 10.4+ Amended and Restated Account Origination Agreement dated May 21, 1999, among NextCard, NextCard Funding Corp. and Heritage Bank of Commerce. 10.5+ Amendment No.1, dated July 15, 1999, to Amended and Restated Account Origination Agreement, among NextCard, NextCard Funding Corp. and Heritage Bank of Commerce. 10.6+ Certificate Purchase Agreement, dated May 21, 1999, among NextCard Funding Corp., as Transferor, NextCard, Inc. as Servicer, Sheffield Receivables Corporation, as Purchaser, and Barclays Bank PLC, as Agent.
34 35
Exhibit Number Description ------ ----------- 10.7+ Certificate Purchase Agreement, dated June 16, 1999, among NextCard Funding Corp., as Transferor, NextCard, Inc. as Servicer, Holland Limited Securitization, Inc., as Purchaser, and ING Baring (U.S.) Capital Markets LLC, as Agent. 27.1 Financial Data Schedule
+ Portions redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. (b) Reports on Form 8-K Not applicable 35 36 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEXTCARD, INC. -------------- (Registrant) Date: August 13, 1999 /s/ Jeremy R. Lent ------------------ Jeremy R. Lent Chairman of the Board, President and Chief Executive Officer Date: August 13, 1999 /s/ John V. Hashman ------------------- John V. Hashman Chief Financial Officer 36 37 EXHIBIT INDEX
Exhibit Number Description ------ ----------- 10.1+ Amended and Restated Pooling and Servicing Agreement, dated as May 21, 1999, among NextCard Funding Corp, as Transferor, NextCard, Inc., as Servicer, and The Bank of New York, as Trustee. 10.2+ Series 1999-1 Supplement, dated as of May 21, 1999, to the Amended and Restated Pooling and Servicing Agreement, among NextCard Funding Corp, as Transferor, NextCard, Inc., as Servicer, and The Bank of New York, as Trustee. 10.3+ Series 1999-2 Supplement, dated as of May 21, 1999, to the Amended and Restated Pooling and Servicing Agreement, among NextCard Funding Corp, as Transferor, NextCard, Inc., as Servicer, and The Bank of New York, as Trustee. 10.4+ Amended and Restated Account Origination Agreement dated May 21, 1999, among NextCard, NextCard Funding Corp. and Heritage Bank of Commerce. 10.5+ Amendment No.1, dated July 15, 1999, to Amended and Restated Account Origination Agreement, among NextCard, NextCard Funding Corp. and Heritage Bank of Commerce. 10.6+ Certificate Purchase Agreement, dated May 21, 1999, among NextCard Funding Corp., as Transferor, NextCard, Inc. as Servicer, Sheffield Receivables Corporation, as Purchaser, and Barclays Bank PLC, as Agent. 10.7+ Certificate Purchase Agreement, dated June 16, 1999, among NextCard Funding Corp., as Transferor, NextCard, Inc. as Servicer, Holland Limited Securitization, Inc., as Purchaser, and ING Baring (U.S.) Capital Markets LLC, as Agent. 27.1 Financial Data Schedule
+ Portions redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. 37 EX-10.1 2 AMENDED & RESTATED POOLING & SERVICING AGREEMENT 1 EXHIBIT 10.1 [EXECUTION COPY] - -------------------------------------------------------------------------------- NEXTCARD FUNDING CORP., as Transferor, NEXTCARD, INC., as Servicer, and THE BANK OF NEW YORK, as Trustee NEXTCARD MASTER TRUST I AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT Dated as of May 21, 1999 - -------------------------------------------------------------------------------- 99 2 TABLE OF CONTENTS ARTICLE I Definitions...............................................................1 Section 1.01. Definitions........................................................1 Section 1.02. Other Definitional Provisions.....................................20 ARTICLE II Conveyance of Receivables................................................22 Section 2.01. Conveyance of Receivables.........................................22 Section 2.02. Acceptance by Trustee.............................................23 Section 2.03. Representations and Warranties of Each Transferor Relating to Such Transferor................................................24 Section 2.04. Representations and Warranties of Each Transferor Relating to the Agreement, the Receivables Transfer Agreements and Any Supplement and the Receivables................................26 Section 2.05. Reassignment of Ineligible Receivables............................28 Section 2.06. Reassignment of Receivables in Trust Portfolio....................29 Section 2.07. Covenants of the Transferor.......................................30 Section 2.08. Covenants of Each Transferor with Respect to Receivables Transfer Agreements...............................................33 Section 2.09. Addition of Accounts..............................................34 Section 2.10. Removal of Accounts and Participation Interests...................37 Section 2.11. Account Allocations...............................................38 Section 2.12. Discount Option...................................................39 ARTICLE III Administration and Servicing of Receivables..............................40
100 3 TABLE OF CONTENTS (CONTINUED) Section 3.01. Acceptance of Appointment and Other Matters Relating to the Servicer..........................................................40 Section 3.02. Servicing Compensation............................................41 Section 3.03. Representations, Warranties and Covenants of the Servicer.........41 Section 3.04. Reports and Records for the Trustee...............................44 Section 3.05. Annual Certificate of Servicer....................................44 Section 3.06. Annual Servicing Report of Independent Public Accountants; Copies of Reports Available.......................................45 Section 3.07. Tax Treatment.....................................................45 Section 3.08. Notices to NextCard, Inc..........................................46 Section 3.09. Adjustments.......................................................46 Section 3.10. Reports to the Commission.........................................47 Section 3.11. Reports to Rating Agencies........................................47 ARTICLE IV Rights of Certificateholders and Allocation and Application of Collections..............................................................48 Section 4.01. Rights of Certificateholders......................................48 Section 4.02. Establishment of Collection Account and Excess Funding Account; Appointment of Securities Intermediary...................48 Section 4.03. Collections and Allocations.......................................51 Section 4.04. Shared Collections................................................52 Section 4.05. Additional Withdrawals from the Collection Account................52 Section 4.06. Allocation of Trust Assets to Series or Groups....................53
101 4 TABLE OF CONTENTS (CONTINUED) ARTICLE V Distributions and Reports to Certificateholders..........................54 ARTICLE VI The Certificates.........................................................55 Section 6.01. The Certificates..................................................55 Section 6.02. Authentication of Certificates....................................55 Section 6.03. New Issuances.....................................................55 Section 6.04. Registration of Transfer and Exchange of Certificates.............57 Section 6.05. Mutilated, Destroyed, Lost or Stolen Certificates.................60 Section 6.06. Persons Deemed Owners.............................................60 Section 6.07. Appointment of Paying Agent.......................................61 Section 6.08. Access to List of Registered Certificateholders' Names and Addresses.........................................................61 Section 6.09. Authenticating Agent..............................................62 Section 6.10. Book-Entry Certificates...........................................63 Section 6.11. Notices to Clearing Agency........................................63 Section 6.12. Definitive Certificates...........................................64 Section 6.13. Global Certificate; Exchange Date.................................64 Section 6.14. Meetings of Certificateholders....................................65 Section 6.15. Uncertificated Classes............................................67
102 5 TABLE OF CONTENTS (CONTINUED) ARTICLE VII Other Matters Relating to the Transferor.................................68 Section 7.01. Liability of the Transferor.......................................68 Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Transferor................................................68 Section 7.03. Limitations on Liability of the Transferor........................69 ARTICLE VIII Other Matters Relating to the Servicer...................................70 Section 8.01. Liability of the Servicer.........................................70 Section 8.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer..................................................70 Section 8.03. Limitation on Liability of the Servicer and Others................70 Section 8.04. Servicer Indemnification of the Trust and the Trustee.............71 Section 8.05. Resignation of the Servicer.......................................71 Section 8.06. Access to Certain Documentation and Information Regarding the Receivables...................................................72 Section 8.07. Delegation of Duties..............................................72 Section 8.08. Examination of Records............................................72 ARTICLE IX Pay Out Events...........................................................73 Section 9.01. Trust Pay Out Events..............................................73 Section 9.02. Rights Upon the Occurrence of an Insolvency Event.................73 ARTICLE X Servicer Defaults........................................................74 Section 10.01. Servicer Defaults.................................................74
103 6 TABLE OF CONTENTS (CONTINUED) Section 10.02. Trustee To Act, Appointment of Successor..........................76 Section 10.03. Notification to Certificateholders................................77 ARTICLE XI The Trustee..............................................................78 Section 11.01. Duties of Trustee.................................................78 Section 11.02. Certain Matters Affecting the Trustee.............................79 Section 11.03. Trustee Not Liable for Recitals in Certificates...................80 Section 11.04. Trustee May Own Certificates......................................80 Section 11.05. Servicer To Pay Trustee's Fees and Expenses.......................81 Section 11.06. Eligibility Requirements for Trustee..............................81 Section 11.07. Resignation or Removal of Trustee.................................81 Section 11.08. Successor Trustee.................................................82 Section 11.09. Merger or Consolidation of Trustee................................82 Section 11.10. Appointment of Co-Trustee or Separate Trustee.....................83 Section 11.11. Tax Returns.......................................................84 Section 11.12. Trustee May Enforce Claims Without Possession of Certificates.....84 Section 11.13. Suits for Enforcement.............................................84 Section 11.14. Rights of Certificateholders To Direct Trustee....................85
104 7 TABLE OF CONTENTS (CONTINUED) Section 11.15. Representations and Warranties of Trustee.........................85 Section 11.16. Maintenance of Office or Agency...................................85 ARTICLE XII Termination..............................................................86 Section 12.01. Termination of Trust..............................................86 Section 12.02. Final Distribution................................................86 Section 12.03. Transferor's Termination Rights...................................87 Section 12.04. Defeasance........................................................87 Section 12.05. Optional Purchase.................................................89 ARTICLE XIII Miscellaneous Provisions.................................................90 Section 13.01. Amendment; Waiver of Past Defaults................................90 Section 13.02. Protection of Right, Title and Interest to Trust..................91 Section 13.03. Limitation on Rights of Certificateholders........................92 SECTION 13.04. GOVERNING LAW.....................................................93 Section 13.05. Notices; Payments.................................................93 Section 13.06. Rule 144A Information.............................................94 Section 13.07. Severability of Provisions........................................94 Section 13.08. Assignment........................................................94 Section 13.09. Certificates Nonassessable and Fully Paid.........................94
105 8 TABLE OF CONTENTS (CONTINUED) Section 13.10. Further Assurances................................................94 Section 13.11. Nonpetition Covenant..............................................94 Section 13.12. No Waiver; Cumulative Remedies....................................95 Section 13.13. Counterparts......................................................95 Section 13.14. Third-Party Beneficiaries.........................................95 Section 13.15. Actions by Certificateholders.....................................95 Section 13.16. Merger and Integration............................................95 Section 13.17. Headings..........................................................95 Section 13.18. Construction of Agreement.........................................95
106 9 This AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT dated as of May 21, 1999, among NEXTCARD FUNDING CORP., a Delaware corporation, as Transferor, NEXTCARD, INC., a Delaware corporation, as Servicer, and THE BANK OF NEW YORK, a New York banking corporation, as Trustee, amends and restates that certain Pooling and Servicing Agreement dated as of December 1, 1998, among NextCard Funding Corp., as Transferor, NextCard, Inc.(as successor to NextCard, Inc., a California corporation), as Servicer, and The Bank of New York, as Trustee, as supplemented by Supplement No. 1 thereto dated as of December 1, 1998 among NextCard Funding Corp., as Transferor, NextCard, Inc. (as successor to NextCard, Inc., a California corporation), as Servicer, and The Bank of New York, as Trustee and Securities Intermediary. In consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other parties, the Certificateholders and any Series Enhancer (to the extent provided herein and in any Supplement): ARTICLE I Definitions 1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. "Account" shall mean each Initial Account and each Additional Account, but shall exclude any Account in which all the Receivables are either reassigned or assigned to the Transferor or its designee or the Servicer in accordance with the terms of this Agreement. The definition of Account shall include each account into which an Account is transferred (a "Transferred Account"); provided that (i) such transfer is made in accordance with the Credit Card Guidelines and (ii) such Transferred Account can be traced or identified, by reference to or by way of the computer files or microfiche lists delivered to the Trustee pursuant to Section 2.01 or 2.09, as an account into which an Account has been transferred. The term "Account" shall be deemed to refer to an Additional Account only from and after the Addition Date with respect thereto, and the term "Account" shall be deemed to refer to any Removed Account only prior to the Removal Date with respect thereto. "Account Originator" shall mean Heritage Bank of Commerce or any other entity which is the issuer of the credit card relating to an Account pursuant to a Cardholder Agreement. "Account Owner" shall mean the Account Originator relating to an Account or any Person who has acquired such Account and has sold the related Receivables to the Transferor pursuant to a Receivables Purchase Agreement. "Accumulation Period" shall mean, with respect to any Series, or any Class within a Series, a period following the Revolving Period, which shall be the accumulation or other period, including any controlled accumulation period or rapid accumulation period, in which 10 Collections of Principal Receivables are accumulated in an account for the benefit of the Investor Certificateholders of such Series, or a Class within such Series, in each case as defined for such Series in the related Supplement. "Act" shall mean the Securities Act of 1933, as amended. "Addition" shall mean the designation of (i) additional Eligible Accounts to be included as Accounts or (ii) Participation Interests to be included as Trust Assets pursuant to subsection 2.09(a), (b) or (d). "Addition Cut-Off Date" shall mean, with respect to any Additional Accounts or Participation Interests to be included in the Trust, the date specified in the related Assignment. "Addition Date" shall mean (i) with respect to Additional Accounts, the date on which the Receivables in such Additional Accounts are conveyed to the Trust pursuant to subsection 2.09(a), (b) or (d) and (ii) with respect to Participation Interests, the date from and after which such Participation Interests are to be included as Trust Assets pursuant to subsection 2.09(a) or (b). "Additional Account" shall mean each consumer revolving credit card account established pursuant to a Cardholder Agreement, which account is designated pursuant to subsection 2.09(a), (b) or (d) to be included as an Account and is identified in a computer file or microfiche list delivered to the Trustee by the Transferor pursuant to Sections 2.01 and 2.09. "Additional Transferors" shall have the meaning specified in subsection 2.09(e). "Adverse Effect" shall mean, with respect to any action, that such action will (a) result in the occurrence of a Pay Out Event or Reinvestment Event with respect to any Series or (b) materially adversely affect the amount or timing of distributions to be made to the Investor Certificateholders of any Series or Class pursuant to this Agreement and the related Supplement. "Affiliate" shall mean, with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" shall mean the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate Invested Amount" shall mean, as of any date of determination, the sum of (i) the aggregate Invested Amounts of all Series of Certificates issued and outstanding on such date of determination plus (ii) the sum of the Enhancement Investor Amounts, if any, for all outstanding Series on such date of determination. "Aggregate Series Percentage" shall mean, with respect to Principal Receivables, Defaulted Receivables and Finance Charge Receivables as of any date of determination, the sum of the Series Percentages for such categories of Receivables for all outstanding Series on such 2 11 date of determination; provided, however, that the Aggregate Series Percentage shall not exceed 100%. "Agreement" shall mean this Amended and Restated Pooling and Servicing Agreement and all amendments hereof and supplements hereto, including, with respect to any Series or Class, the related Supplement. "Amortization Period" shall mean, with respect to any Series, or any Class within a Series, a period following the Revolving Period, which shall be the controlled amortization period, controlled accumulation period, the principal amortization period, the rapid amortization period, the rapid accumulation period, the optional amortization period, the limited amortization period or other amortization period or accumulation period, in each case as defined with respect to such Series in the related Supplement. "Applicants" shall have the meaning specified in Section 6.08. "Assignment" shall have the meaning specified in subsection 2.09(c)(vii). "Authorized Newspaper" shall mean any newspaper or newspapers of general circulation in the Borough of Manhattan, the City of New York, printed in the English language (and, with respect to any Series or Class, if and so long as the Investor Certificates of such Series or Class are listed on the Luxembourg Stock Exchange and such exchange shall so require, in Luxembourg, printed in any language satisfying the requirements of such exchange) and customarily published on each business day at such place, whether or not published on Saturdays, Sundays or holidays. "Automatic Additional Account" shall have the meaning specified in subsection 2.09(d)(i). "Bearer Certificates" shall have the meaning specified in Section 6.01. "Benefit Plan" shall have the meaning specified in subsection 6.04(c) . "Book-Entry Certificates" shall mean beneficial interests in the Investor Certificates (including security entitlements relating thereto), ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 6.10. "Business Day" shall mean any day other than (a) a Saturday or Sunday, (b) any other day on which banking institutions in New York, New York (or, with respect to any Series, any additional city specified in the related Supplement) or any other State in which the principal executive offices of the Transferor or any Additional Transferor or the Trustee are located, are authorized or obligated by law, executive order or governmental decree to be closed, or (c) for purposes of any particular Series, any other day specified in the applicable Series Supplement. "Cardholder Agreement" shall mean, with respect to a consumer revolving credit card account, the agreements between an Account Owner, and the related Obligor governing the 3 12 terms and conditions of such account, as such agreements may be amended, modified or otherwise changed from time to time and as distributed (including any amendments and revisions thereto) to holders of such account. "Cash Advance Fees" shall have the meaning specified in the Cardholder Agreement applicable to an Account for cash advance fees or similar terms. "Cedel" shall mean Cedelbank, societe anonyme, a professional depository incorporated under the laws of Luxembourg, and its successors. "Certificate" shall mean any one of the Investor Certificates or the Transferor Certificates. "Certificateholder" or "Holder" shall mean an Investor Certificateholder or a Person in whose name any one of the Transferor Certificates is registered. "Certificateholders' Interest" shall have the meaning specified in Section 4.01. "Certificate Owner" shall mean, with respect to a Book-Entry Certificate, the Person who is the owner of such Book-Entry Certificate, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). "Certificate Rate" shall mean, with respect to any Series or Class, the certificate rate specified therefor in the related Supplement. "Certificate Register" shall mean the register maintained pursuant to Section 6.04, providing for the registration of the Registered Certificates and the Transferor Certificates and transfers and exchanges thereof. "Class" shall mean, with respect to any Series, any one of the classes of Investor Certificates of that Series. "Clearing Agency" shall mean an organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended, and serving as a clearing agency for a Series or Class of Book-Entry Certificates. "Clearing Agency Participant" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers of securities deposited with the Clearing Agency. "Closing Date" shall mean, with respect to any Series, the closing date specified in the related Supplement. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 4 13 "Collection Account" shall have the meaning specified in Section 4.02. "Collections" shall mean all payments by or on behalf of Obligors (including Insurance Proceeds) received in respect of the Receivables, in the form of cash, checks (to the extent collected), wire transfers, electronic transfers, ATM transfers or other form of payment in accordance with the Cardholder Agreement in effect from time to time. As specified in any Participation Interest Supplement or Supplement, Collections shall include amounts received with respect to Participation Interests. All Recoveries with respect to Receivables previously charged-off as uncollectible will be treated as Collections of Finance Charge Receivables. Collections with respect to any Monthly Period shall include Interchange, calculated pursuant to subsection 2.07(h), paid to the Trust with respect to such Monthly Period, to be applied as if such amount were Collections of Finance Charge Receivables for all purposes. "Commission" shall mean the United States Securities and Exchange Commission. "Companion Series" shall mean (i) each Series which has been paired with another Series (which Series may be prefunded or partially prefunded), such that the reduction of the Invested Amount of such Series results in the increase of the Invested Amount of such other Series, as described in the related Supplements, and (ii) such other Series. "Contractually Delinquent" with respect to an Account, shall mean an Account as to which the required minimum payment set forth on the related billing statement has not been received by the due date thereof. "Corporate Trust Office" shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Agreement is located at 101 Barclay Street, 12th Floor East, New York, New York 10286. "Coupon" shall have the meaning specified in Section 6.01. "Credit Card Guidelines" shall mean the written policies and procedures of the Servicer, Heritage Bank of Commerce or any other Account Owner, as the case may be, relating to the operation of its consumer revolving lending business, which are consistent with prudent practice, including, without limitation, the written policies and procedures for determining the creditworthiness of credit card account customers, the extension of credit to credit card account customers and relating to the maintenance of credit card accounts and collection of receivables with respect thereto, as such policies and procedures may be amended, modified, or otherwise changed from time to time. "Date of Processing" shall mean, with respect to any transaction or receipt of Collections, the Business Day such transaction or receipt of Collections is first recorded on the Servicer's computer file of consumer revolving credit card accounts (without regard to the effective date of such recordation). 5 14 "Defaulted Amount" shall mean, with respect to any Monthly Period, an amount (which shall not be less than zero) equal to (a) the amount of Principal Receivables which became Defaulted Receivables in such Monthly Period, minus (b) the amount of any Defaulted Receivables included in any Account the Receivables of which the related Transferor or the Servicer became obligated to accept reassignment or assignment in accordance with the terms of this Agreement during such Monthly Period; provided, however, that, if an Insolvency Event occurs with respect to the Transferor, the amount of such Defaulted Receivables which are subject to reassignment to the Transferor in accordance with the terms of this Agreement shall not be added to the sum so subtracted and, if any of the events described in subsection 10.01(d) occur with respect to the Servicer, the amount of such Defaulted Receivables which are subject to reassignment or assignment to the Servicer in accordance with the terms of this Agreement shall not be added to the sum so subtracted. "Defaulted Receivables" shall mean, with respect to any Monthly Period, all Principal Receivables which are charged off as uncollectible in such Monthly Period in accordance with the Credit Card Guidelines and the Servicer's customary and usual servicing procedures for servicing consumer revolving credit card and other revolving credit account receivables comparable to the Receivables. A Principal Receivable shall become a Defaulted Receivable on the day on which such Principal Receivable is recorded as charged off on the Servicer's computer master file of consumer revolving credit card accounts but, in any event, shall be deemed a Defaulted Receivable no later than the month following the day the related Account becomes 180 days Contractually Delinquent unless the Obligor cures such default by making a partial payment which satisfies the criteria for curing delinquencies set forth in the applicable Credit Card Guidelines. "Defeasance" shall have the meaning specified in subsection 12.04(a). "Defeased Series" shall have the meaning specified in subsection 12.04(a). "Definitive Certificates" shall have the meaning specified in Section 6.10. "Definitive Euro-Certificates" shall have the meaning specified in Section 6.13. "Deposit Date" shall mean each day on which the Servicer deposits Collections in the Collection Account. "Depositaries" shall mean the Person specified in the applicable Supplement, in its capacity as depositary for the respective accounts of any Clearing Agency or any Foreign Clearing Agencies. "Depository Agreement" shall mean, if applicable with respect to any Series or Class, the depository agreement among the Transferor, the Trustee and a Clearing Agency, or as otherwise provided in the related Supplement. "Determination Date" shall mean, unless otherwise specified in the related Supplement, with respect to any Distribution Date, the third Business Day preceding such 6 15 Distribution Date. "Discount Option Date" shall mean each date on which a Discount Percentage designated by the Transferor pursuant to Section 2.12 takes effect. "Discount Option Receivables" shall have the meaning specified in subsection 2.12(a). The aggregate amount of Discount Option Receivables outstanding on any Date of Processing occurring on or after the Discount Option Date shall equal the sum of (a) the aggregate Discount Option Receivables at the end of the prior Date of Processing (which amount, prior to the Discount Option Date, shall be zero) plus (b) any new Discount Option Receivables created on such Date of Processing minus (c) any Discount Option Receivables Collections received on such Date of Processing. Discount Option Receivables created on any Date of Processing shall mean the product of the amount of any Principal Receivables created on such Date of Processing (without giving effect to the proviso in the definition of Principal Receivables) and the Discount Percentage. "Discount Option Receivable Collections" shall mean on any Date of Processing occurring in any Monthly Period succeeding the Monthly Period in which the Discount Option Date occurs, the product of (a) a fraction the numerator of which is the Discount Option Receivables and the denominator of which is the sum of the Principal Receivables and the Discount Option Receivables in each case (for both the numerator and the denominator) at the end of the preceding Monthly Period and (b) Collections of Principal Receivables on such Date of Processing (without giving effect to the proviso in the definition of Principal Receivables). "Discount Percentage" shall mean the percentages, if any, designated by the Transferor pursuant to subsection 2.12(a). "Distribution Date" shall mean, unless otherwise defined in a Supplement with respect to a Series, the fifteenth day of each calendar month or, if such fifteenth day is not a Business Day, the next succeeding Business Day. "Dollars," "$" or "U.S. $" shall mean United States Dollars. "Eligible Account" shall mean a consumer revolving credit card account owned by Heritage Bank of Commerce, in the case of the Initial Accounts, or Heritage Bank of Commerce or other Account Owner, in the case of Additional Accounts, which accounts are identified by the relevant Account Owner as of the Initial Cut-Off Date or Addition Cut-Off Date, as applicable, as having the following characteristics: (a) is in existence and maintained by Heritage Bank of Commerce, in the case of the Initial Accounts, or Heritage Bank of Commerce or other Account Owner in the case of Additional Accounts; (b) is payable in Dollars; (c) except as provided below, has not been identified as an 7 16 account the credit card or cards with respect to which have been reported to the applicable Account Owner as having been lost or stolen or has an Obligor who has not been identified as deceased; (d) the Obligor of which has provided, as his or her billing address, an address located in the United States (or its territories or possessions or military address); (e) except as provided below, does not have any Receivables which are Defaulted Receivables; (f) except as provided below, does not have any Receivables which have been identified by the applicable Account Owner or the relevant Obligor as having been incurred as a result of fraudulent use of any related credit card; (g) was created in accordance with the Credit Card Guidelines of the applicable Account Originator at the time of creation of such Account; and (h) does not have outstanding Receivables which have been sold or pledged by the related Account Owner to any party other than the Transferor pursuant to a Receivables Purchase Agreement. 8 17 Eligible Accounts may include Accounts, the Receivables of which have been written off, or with respect to which the Transferor believes the related Obligor is bankrupt, or as to which certain Receivables have been identified by the Obligor as having been incurred as a result of fraudulent use of any credit cards, or as to which any credit cards have been reported to the Account Owner or the Servicer as lost or stolen, in each case as of the Initial Cut-Off Date, with respect to the Initial Accounts, and as of the related Addition Cut-Off Date, with respect to Additional Accounts; provided that (a) the balance of all Receivables included in such Accounts is reflected on the books and records of the Account Owner (and is treated for purposes of this Agreement) as "zero," and (b) charging privileges with respect to all such Accounts have been canceled in accordance with the relevant Credit Card Guidelines. "Eligible Institution" shall mean a depository institution (which may be 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 branch of a foreign bank) which depository institution at all times (a) has either (i) a long-term unsecured debt rating of A2 or better by Moody's or (ii) a certificate of deposit rating of P-1 by Moody's, (b) has either (i) a long-term unsecured debt rating of A by Standard & Poor's or (ii) a certificate of deposit rating of A-1+ by Standard & Poor's and (c) is a member of the FDIC. Notwithstanding the previous sentence, any institution the appointment of which satisfies the Rating Agency Condition shall be considered an Eligible Institution. If so qualified, the Trustee may be considered an Eligible Institution for the purposes of this definition. "Eligible Investments" shall mean securities, instruments, securities entitlements or other investment property with respect to: (a) direct obligations of, and obligations fully guaranteed as to timely payment of principal and interest by, the United States of America; (b) demand deposits, time deposits or certificates of deposit (having original maturities of no more than 365 days) of depository institutions or trust companies incorporated under the laws of the United States of America or any state thereof (or domestic branches of foreign banks) and subject to supervision and examination by federal or state banking or depository institution authorities; provided, that at the time of the Trust's investment or contractual commitment to invest therein, the short-term debt rating of such depository institution or trust company shall be in the highest investment category of each Rating Agency; (c) commercial paper or other short-term obligations having initial maturities of no more than 270 days, and having, at the time of the Trust's investment or contractual commitment to invest therein, a rating from each Rating Agency in its highest investment category; (d) notes or bankers' acceptances (having original maturities of no more than 365 days) issued by any depository institution or trust company referred to in (b) above; 9 18 (e) investments in money market funds rated in the highest investment category by each Rating Agency or otherwise approved in writing by each Rating Agency; (f) time deposits, other than as referred to in clause (e) above, with a Person the commercial paper of which has a credit rating from each Rating Agency in its highest investment category; or (g) any other investments approved in writing by each Rating Agency. "Eligible Receivable" shall mean each Receivable: (a) which has arisen under an Eligible Account; (b) which was created in compliance with all Requirements of Law applicable to the related Account Originator and any institution which owned the Receivable at the time of its creation, the failure to comply with which would have a material adverse effect on Investor Certificateholders, and pursuant to a Cardholder Agreement which complies in all material respects with all Requirements of Law applicable to the related Account Originator and Account Owner, the failure to comply with which would have a material adverse effect on Investor Certificateholders; (c) with respect to which all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained or given by the applicable Account Originator and any subsequent Account Owner, in connection with the creation of such Receivable or the execution, delivery and performance by the applicable Account Originator and any subsequent Account Owner of its obligations, if any, under the related Cardholder Agreement have been duly obtained or given and are in full force and effect as of such date of creation of such Receivable; (d) as to which, at the time of the transfer of such Receivable to the Trust, the Transferor or the Trust will have good and marketable title thereto, free and clear of all Liens (other than any Lien for municipal or other local taxes if such taxes are not then due and payable or if the Transferor is then contesting the validity thereof in good faith by appropriate proceedings and has set aside on its books adequate reserves with respect thereto); (e) which has been the subject of either a valid transfer and assignment from the Transferor to the Trust of all the 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; 10 19 (f) which at and after the time of transfer to the Trust is the legal, valid and binding payment obligation of the Obligor thereon, legally enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); (g) which constitutes either an "account" or a "general intangible" under and as defined in Article 9 of the UCC; (h) which, at the time of its transfer to the Trust, has not been waived or modified except as permitted in accordance with the Credit Card Guidelines and which waiver or modification is reflected in the Servicer's computer file of revolving credit card accounts; (i) which, at the time of its transfer to the Trust, is not subject to any right of rescission, setoff, counterclaim or any other defense of the Obligor (including the defense of usury), other than defenses arising out of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or equity) or as to which the Servicer is required by Section 3.09 to make an adjustment; (j) as to which, at the time of its transfer to the Trust, the relevant Account Originator and any subsequent Account Owner has satisfied all its obligations required to be satisfied by such time; and (k) as to which, at the time of its transfer to the Trust, none of the Transferor, the Servicer, Heritage Bank of Commerce or any other Account Owner, as the case may be, has taken any action which, or failed to take any action the omission of which, would, at the time of its transfer to the Trust, impair the rights of the Trust or the Certificateholders therein. "Eligible Servicer" shall mean the Trustee, or if the Trustee is not acting as Servicer, an entity which, at the time of its appointment as Servicer, (a) is servicing a portfolio of revolving credit card accounts, (b) is legally qualified and has the capacity to service the Accounts (including, if applicable, the ability to service VISA(R)1 credit card accounts), (c) is qualified to use the software that is then being used to service the Accounts or obtains the right to use, or has its own software, which is adequate to perform its duties under this Agreement, and (d) has demonstrated the ability to professionally and competently service a portfolio of similar accounts in accordance with high standards of skill and care. - -------- 1 VISA is a registered trademark of VISA USA, Inc. 11 20 "Enhancement Agreement" shall mean any agreement, instrument or document governing the terms of any Series Enhancement or pursuant to which any Series Enhancement is issued or outstanding. "Enhancement Investor Amount" shall have the meaning, if applicable with respect to any Series, specified in the related Supplement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Euroclear Operator" shall mean Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. "Excess Allocation Series" shall mean a Series that, pursuant to the Supplement therefor, is entitled to receive Excess Finance Charge Collections, as more specifically set forth in the Supplement. If so specified in the Supplement for a Group of Series, such Series may be Excess Allocation Series only for the Series in such Group. "Excess Finance Charge Collections" shall have the meaning specified in subsection 4.04(b). "Excess Funding Account" shall have the meaning specified in Section 4.02. "Excess Funding Amount" shall mean the amount on deposit in the Excess Funding Account. "Excess Spread" with respect to each Series shall have the meaning specified in the applicable Supplement. "Exchange Date" shall mean, with respect to any Series, any date that is after the related Closing Date, in the case of Definitive Euro-Certificates in registered form, or upon presentation of certification of non-United States beneficial ownership (as described in Section 6.13), in the case of Definitive Euro-Certificates in bearer form. "FDIC" shall mean the Federal Deposit Insurance Corporation or any successor. "Finance Charge Receivables" shall mean all amounts billed to the Obligors on any Account in respect of (i) Periodic Finance Charges, (ii) annual membership fees and annual service charges, (iii) Late Fees, (iv) Overlimit Fees, (v) Cash Advance Fees, (vi) Discount Option Receivables, if any, and (vii) all other fees and charges with respect to the Accounts designated by the Transferor to be included as Finance Charge Receivables. Finance Charge Receivables shall also include (i) the interest portion of Participation Interests as shall be determined pursuant to the applicable Participation Interest Supplement or Supplement, (ii) Interchange and (iii) all Recoveries with respect to Receivables previously charged off as uncollectible. "Finance Charge Shortfall" shall have the meaning specified in subsection 4.04(b). 12 21 "FIRREA" shall mean the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended. "Fitch" shall mean Fitch IBCA, Inc. or its successors. "Foreign Clearing Agency" shall mean Cedel and the Euroclear Operator. "Global Certificate" shall have the meaning specified in subsection 6.13(a). "Governmental Authority" shall mean the United States of America, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Group" shall mean, with respect to any Series, the group of Series, if any, in which the related Supplement specifies such Series is to be included. "Heritage Bank of Commerce" shall mean Heritage Bank of Commerce, a California state chartered bank, and its successors and assigns. "Ineligible Receivables" shall have the meaning specified in subsection 2.05(a). "Initial Account" shall mean each VISA account established pursuant to a Cardholder Agreement between Heritage Bank of Commerce and any Person, and identified by account number and by the Receivable balance in a computer file or microfiche list delivered to the Trustee by the Transferor on or prior to the Initial Closing Date pursuant to Section 2.01. "Initial Closing Date" shall mean December 29, 1998. "Initial Cut-Off Date" shall mean December 1, 1998. "Insolvency Event" shall have the meaning specified in subsection 9.01(a)(i). "Insurance Proceeds" shall mean any amounts recovered by the Servicer pursuant to any credit insurance policies covering any Obligor with respect to Receivables under such Obligor's Account. "Interchange" shall mean the portion allocable to the Accounts of interchange fees payable to any Account Owner, in its capacity as credit card issuer, through VISA in connection with cardholder charges for goods, services and cash advances. Any reference in this Agreement or any Supplement to Interchange shall refer only to the portion of such interchange fees for any Monthly Period equal to the product of (i) the total amount of interchange fees paid or payable to the Transferor with respect to such Monthly Period, (ii) a fraction the numerator of which is the aggregate amount of cardholder charges for goods and services in the Accounts with respect to such Monthly Period and the denominator of which is the aggregate amount of cardholder charges for goods and services in all VISA consumer revolving credit card accounts owned by the Transferor with respect to such Monthly Period. 13 22 "Invested Amount" shall mean, with respect to any Series and for any date, an amount equal to the Invested Amount specified in the related Supplement. "Investment Company Act" shall mean the Investment Company Act of 1940, as amended from time to time. "Investor Certificateholder" shall mean the Person in whose name a Registered Certificate is registered in the Certificate Register or the bearer of any Bearer Certificate (or the Global Certificate, as the case may be) or Coupon. "Investor Certificates" shall mean any certificated or uncertificated interest in the Trust designated as, or deemed to be, an "Investor Certificate" in the related Supplement. "Late Fees" shall have the meaning specified in the Cardholder Agreement applicable to each Account for late fees or similar terms. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, participation or equity interest, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the UCC (other than any such financing statement filed for informational purposes only) or comparable law of any jurisdiction to evidence any of the foregoing, excluding any lien or filing pursuant to this Agreement; provided, however, that any assignment or transfer pursuant to subsection 6.03(c) or (d) or Section 7.02 shall not be deemed to constitute a Lien. "Manager" shall mean the lead manager, manager or co-manager or Person performing a similar function with respect to an offering of Definitive Euro-Certificates. "Monthly Period" shall mean, with respect to each Distribution Date, unless otherwise provided in a Supplement, the period from and including the first day of the preceding calendar month to and including the last day of such calendar month; provided, however, that the initial Monthly Period with respect to any Series will be as designated in the related Supplement. "Monthly Servicing Fee" shall have the meaning specified in Section 3.02. "Moody's" shall mean Moody's Investors Service, Inc., or its successor. "Notices" shall have the meaning specified in subsection 13.05(a). "NextCard, Inc." shall mean NextCard, Inc., a Delaware corporation, and its successors and assigns. "Obligor" shall mean, with respect to any Account, the Person or Persons obligated to make payments with respect to such Account, including any guarantor thereof, but 14 23 excluding any merchant. "Officer's Certificate" shall mean, unless otherwise specified in this Agreement, a certificate delivered to the Trustee signed by the Chairman of the Board, President, any Vice President or the Treasurer of the Transferor or the Servicer, as the case may be. "Opinion of Counsel" shall mean a written opinion of counsel, who may be counsel for, or an employee of, the Person providing the opinion and who shall be reasonably acceptable to the Trustee. "Overlimit Fees" shall have the meaning specified in the Cardholder Agreement applicable to each Account for overlimit fees or similar terms if such fees are provided for with respect to such Account. "Participation Interests" shall have the meaning specified in subsection 2.09(a)(ii). "Participation Interest Supplement" shall mean a Supplement entered into pursuant to subsections 2.09(a)(ii) and 13.01(a) in connection with the conveyance of Participation Interests to the Trust. "Participating Transferor" shall have the meaning specified in subsection 2.09(c)(i). "Paying Agent" shall mean any paying agent and co-paying agent appointed pursuant to Section 6.07 and shall initially be the Trustee; provided, that if the Supplement for a Series so provides, a Paying Agent may be appointed with respect to such Series. "Pay Out Event" shall mean, with respect to each Series, a Trust Pay Out Event or a Series Pay Out Event. "Periodic Finance Charges" shall have the meaning specified in the Cardholder Agreement applicable to each Account for finance charges (due to periodic rate) or any similar term. "Person" shall mean any legal person, including any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, governmental entity or other entity of similar nature. "Principal Receivables" shall mean all amounts charged by Obligors for merchandise and services, cash advances and check advances, but shall not include Finance Charge Receivables or Defaulted Receivables; provided, however, that after the Discount Option Date, Principal Receivables on any Date of Processing thereafter shall mean Principal Receivables as otherwise determined pursuant to this definition minus the amount of any Discount Option Receivables. Principal Receivables shall also include the principal portion of Participation Interests as shall be determined pursuant to the applicable Participation Interest Supplement or Supplement. In calculating the aggregate amount of Principal Receivables on any 15 24 day, the amount of Principal Receivables shall be reduced by the aggregate amount of credit balances in the Accounts on such day. Any Receivables which the related Transferor is unable to transfer as provided in Section 2.11 shall not be included in calculating the aggregate amount of Principal Receivables, except to the extent so provided in Section 2.11. "Principal Sharing Series" shall mean a Series that, pursuant to the Supplement therefor, is entitled to receive Shared Principal Collections. If so specified in the Supplement for a Group of Series, such Series may be a Principal Sharing Series only for the Series in such Group. "Principal Shortfalls" shall have the meaning specified in subsection 4.04(a). "Principal Terms" shall mean, with respect to any Series, (i) the name or designation; (ii) the initial principal amount and the Invested Amount (or method for calculating such amount); (iii) the Certificate Rate (or method for the determination thereof); (iv) the payment date or dates and the date or dates from which interest shall accrue; (v) the method for allocating Collections to Certificateholders of such Series; (vi) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts; (vii) the method of calculating the servicing fee with respect thereto; (viii) the terms of any form of Series Enhancement with respect thereto; (ix) the terms on which the Investor Certificates of such Series may be exchanged for Investor Certificates of another Series, repurchased by the Transferor or remarketed to other investors; (x) the Series Termination Date; (xi) the number of Classes of Investor Certificates of such Series and, if such Series consists of more than one Class, the rights and priorities of each such Class; (xii) the extent to which the Investor 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); (xiii) whether the Investor Certificates of such Series may be issued as Bearer Certificates and any limitations imposed thereon; (xiv) the priority of such Series with respect to any other Series; (xv) the Group, if any, to which such Series belongs; (xvi) whether or not such Series is a Principal Sharing Series, whether such Series is an Excess Allocation Series, and (xvii) any other terms of such Series. "Qualified Account" shall mean either (a) a segregated trust account established with the corporate trust department of a Securities Intermediary or (b) a segregated account with a Securities Intermediary that is an Eligible Institution. "Rating Agency" shall mean, with respect to any outstanding Series or Class, each statistical rating agency, if any, selected by the Transferor to rate the Investor Certificates of such Series or Class, as specified in the related Supplement. "Rating Agency Condition" shall mean, with respect to any action, that each Rating Agency, if any, shall have notified the Transferor in writing that such action will not result in a reduction or withdrawal of the rating of any outstanding Series or Class with respect to which it is a Rating Agency. 16 25 "Reassignment" shall have the meaning specified in Section 2.10. "Receivable" shall mean all amounts shown on the Servicer's records as amounts payable by Obligors on any Account from time to time, including amounts payable for Principal Receivables and Finance Charge Receivables. Receivables which become Defaulted Receivables will cease to be included as Receivables as of the day on which they become Defaulted Receivables. "Receivables Transfer Agreements" shall mean (i) the Amended and Restated Account Origination Agreement by and between the Servicer, the Transferor and Heritage Bank of Commerce dated as of May 21, 1999, as amended from time to time in accordance with the terms thereof, and (ii) any receivables transfer agreement entered into between the Servicer, the Transferor and an Account Owner in the future; provided, that before the Transferor shall enter into any additional receivables transfer agreement as described in (ii) of this definition, (a) the Rating Agency Condition is satisfied with respect to such receivables transfer agreement and (b) the Transferor shall have delivered to the Trustee an Officer's Certificate to the effect that such officer reasonably believes that the execution and delivery of such receivables transfer agreement and the purchase of Receivables from the Account Owner named therein will not have an Adverse Effect. "Record Date" shall mean, with respect to any Distribution Date, the last Business Day of the preceding Monthly Period, except as otherwise provided with respect to a Series in the related Supplement. "Recoveries" shall mean amounts, excluding Insurance Proceeds, received by the Servicer with respect to Receivables which have previously become Defaulted Receivables. "Registered Certificateholder" shall mean the Holder of a Registered Certificate. "Registered Certificates" shall have the meaning specified in Section 6.01. "Reinvestment Event" shall mean, with respect to any Series, such event or events, if any, specified in the Supplement as an event resulting in a rapid accumulation period with respect to such Series, which may include events designated herein as Trust Pay Out Events. "Removal Cut-Off Date" shall have the meaning specified in subsection 2.10(b). "Removal Date" shall have the meaning specified in subsection 2.10(a). "Removal Notice Date" shall have the meaning specified in subsection 2.10(a). "Removed Accounts" shall have the meaning specified in Section 2.10. "Required Designation Date" shall have the meaning specified in subsection 2.09(a). "Required Principal Balance" shall mean, as of any date of determination, an 17 26 amount equal to the difference between (a) the sum of the Invested Amounts for each Series outstanding on such date, minus (b) the Excess Funding Amount. "Required Transferor Amount" shall mean, with respect to any date, an amount equal to (i) the product of the Required Transferor Percentage and (ii) the sum of the Invested Amounts for each Series outstanding on such date. "Required Transferor Percentage" shall mean [*]; provided, however, that the Transferor may reduce the Required Transferor Percentage upon (x) 30 days' prior notice to the Trustee and each Rating Agency, (y) satisfaction of the Rating Agency Condition with respect thereto and (z) delivery to the Trustee of a certificate of a Vice President or more senior officer of the Transferor stating that the Transferor reasonably believes that such reduction will not, based on the facts known to such officer at the time of such certification, then or thereafter have an Adverse Effect; provided further, that the Required Transferor Percentage shall not at any time be less than [*]. "Requirements of Law" with respect to any Person shall mean the certificate of incorporation or articles of association and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether Federal, state or local (including, without limitation, usury laws, the Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of Governors of the Federal Reserve System). "Responsible Officer" shall mean any officer within the Corporate Trust Office (or any successor group of the Trustee) including any Vice President, any Assistant Secretary, any Assistant Treasurer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers who has direct responsibility for the administration of this Agreement and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Revolving Period" shall mean, with respect to any Series, the period specified as such in the related Supplement. "Rule 144A" shall mean Rule 144A under the Act, as such Rule may be amended from time to time. "Securities Intermediary" shall mean The Bank of New York, a New York banking corporation, or any other entity that is a depository institution that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity and which is organized under the laws of the United States or any one of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank) which has a credit rating from each Rating Agency in one of its generic credit rating categories which signifies investment grade. "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 18 27 "Series" shall mean any series of Investor Certificates established pursuant to a Supplement. "Series Account" shall mean any deposit, trust, escrow or similar account maintained for the benefit of any Series or Class, as specified in any Supplement. "Series Enhancement" shall mean the rights and benefits provided to the Investor Certificateholders of any Series or Class pursuant to any letter of credit, surety bond, cash collateral account, cash collateral guaranty, spread account, guaranteed rate agreement, maturity liquidity facility, tax protection agreement, interest rate swap agreement, interest rate cap agreement or other similar arrangement. The subordination of any Series or Class to another Series or Class shall be deemed to be a Series Enhancement. "Series Enhancer" shall mean the Person or Persons providing any Series Enhancement, other than the Investor Certificateholders of any Series or Class which is subordinated to another Series or Class. "Series Pay Out Event" shall mean, with respect to any Series, each event, if any, specified in the Supplement as a Series Pay Out Event with respect to such Series. "Series Percentage" shall have, with respect to Principal Receivables, Finance Charge Receivables and Defaulted Receivables, and any Series of Certificates, the meaning stated in the related Supplement. "Series Termination Date" shall mean, with respect to any Series, the termination date for such Series specified in the related Supplement. "Servicer" shall mean initially NextCard, Inc. and its permitted successors and assigns, in its capacity as Servicer pursuant to this Agreement, and thereafter any Person appointed Successor Servicer as herein provided. "Servicer Default" shall have the meaning specified in Section 10.01. "Servicing Fee" shall have the meaning specified in Section 3.02. "Servicing Fee Rate" shall mean, with respect to any Series, the servicing fee rate specified in the related Supplement. "Servicing Officer" shall mean any officer of the Servicer, or any attorney-in-fact of the Servicer, involved in, or responsible for, the administration and servicing of the Receivables whose name appears on a list of servicing officers furnished to the Trustee by the Servicer, as such list may from time to time be amended. "Shared Principal Collections" shall have the meaning specified in subsection 4.04(a). "Standard & Poor's" shall mean Standard & Poor's, a division of The McGraw- 19 28 Hill Companies, or its successor. "Successor Servicer" shall have the meaning specified in subsection 10.02(a). "Supplement" shall mean, with respect to any Series, a Supplement to this Agreement, executed and delivered in connection with the original issuance of the Investor Certificates of such Series pursuant to Section 6.03, and all amendments thereof and supplements thereto. "Supplemental Certificate" shall have the meaning specified in subsection 6.03(c). "Tax Opinion" shall mean, with respect to any action, an Opinion of Counsel (which for this purpose shall not include any employee of the Transferor or any Affiliate thereof) to the effect that, (a) for Federal income tax purposes, such action will not adversely affect the tax characterization of Investor Certificates of any outstanding Series or Class that were characterized as debt at the time of their issuance, (b) such action will not cause the Trust to be deemed to be an association (or publicly traded partnership) taxable as a corporation and (c) such action will not cause or constitute an event in which gain or loss would be recognized by any Investor Certificateholder. "Termination Notice" shall have the meaning specified in Section 10.01. "Transfer Agent and Registrar" shall have the meaning specified in Section 6.04. "Transfer Date" shall mean the Business Day immediately preceding each Distribution Date. "Transfer Restriction Event" shall have the meaning specified in Section 2.11 "Transferor" shall mean (a) NextCard Funding Corp., a wholly-owned special purpose subsidiary of NextCard, Inc. and incorporated in the State of Delaware, or its successor under this Agreement and (b) any Additional Transferor or Transferors. References to "each Transferor" shall refer to each entity mentioned in the preceding sentence and references to "the Transferor" shall refer to all such entities. "Transferor Amount" shall mean, on any date of determination, an amount equal to (i) the sum of (a) an amount equal to the aggregate amount of Principal Receivables at the end of the day immediately prior to such date of determination plus (b) the Excess Funding Amount at the end of the day immediately prior to such date of determination, minus (ii) the sum of the Invested Amounts for each Series outstanding on such date at the end of such day. "Transferor Certificate" shall mean the certificate executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A, as the same may be modified in accordance with subsection 2.09(e). "Transferor Certificates" shall mean, collectively, the Transferor Certificate and any outstanding Supplemental Certificates. 20 29 "Transferor Percentage" shall mean, on any date of determination, when used with respect to Principal Receivables, Finance Charge Receivables and Defaulted Receivables, a percentage equal to 100% minus the Aggregate Series Percentage with respect to such categories of Receivables. "Transferor's Interest" shall have the meaning specified in Section 4.01. "Transferred Account" shall have the meaning set forth in the definition of "Account." "Trust" shall mean the NextCard Master Trust I created by this Agreement. "Trust Assets" shall have the meaning specified in Section 2.01. "Trust Invested Amount" shall mean the aggregate Invested Amounts for all outstanding Series of Certificates. "Trustee" shall mean The Bank of New York, a New York banking corporation, in its capacity as trustee on behalf of the Trust, or its successor in interest, or any successor trustee appointed as herein provided. "Trust Pay Out Event" shall mean each event specified in subsection 9.01; provided, however, that with respect to any Series, if so specified in the related Supplement, a Trust Pay Out Event may instead be a Reinvestment Event. "UCC" shall mean the Uniform Commercial Code, as amended from time to time, as in effect in the State of California or any other state or states where the filing of a financing statement is required to perfect the Trust's interest in the Receivables and the proceeds thereof or in any other specified jurisdiction. "United States" shall mean the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "Vice President" when used with respect to the Transferor or the Servicer shall mean any vice president thereof whether or not designated by a number or word or words added before or after the title "vice president." "VISA" shall mean VISA USA, Inc. 1.2 Other Definitional Provisions. (a) With respect to any Series, all terms used herein and not otherwise defined herein shall have meanings ascribed to them in the related Supplement. (b) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. 21 30 (c) As used in this Agreement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles or regulatory accounting principles, as applicable. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under generally accepted accounting principles or regulatory accounting principles, the definitions contained in this Agreement or in any such certificate or other document shall control. (d) The agreements, representations and warranties of NextCard Funding Corp. and NextCard, Inc. in this Agreement in each of their respective capacities as Transferor and as Servicer, shall be deemed to be the agreements, representations and warranties of NextCard Funding Corp. and NextCard, Inc. solely in each such capacity for so long as NextCard Funding Corp. and NextCard, Inc. act in each such capacity under this Agreement. (e) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; references to any Section, Schedule or Exhibit are references to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified; and the term "including" means "including without limitation." (f) Unless otherwise specifically provided herein, the failure of this Agreement to specify the meaning of a term or the applicability of a provision to any Series shall not preclude the meaning of such term or the applicability of such provision with respect to such Series being set forth in the Supplement therefor. ARTICLE II Conveyance of Receivables 2.1. Conveyance of Receivables. By execution of this Agreement, NextCard Funding Corp., as Transferor, does hereby transfer, assign, set over and otherwise convey to the Trustee, on behalf of the Trust, for the benefit of the Certificateholders, all its right, title and interest in, to and under the Receivables existing at the close of business on the Initial Cut-Off Date, in the case of Receivables arising in the Initial Accounts, and on each Addition Cut-Off Date, in the case of Receivables arising in the Additional Accounts, and in each case thereafter created from time to time until the termination of the Trust, all monies due or to become due and all amounts received with respect thereto (including any and all Recoveries) and all proceeds (including "proceeds" as defined in the UCC) thereof and any other Trust Assets (as hereinafter defined). Such property, together with all monies and other property on deposit in or credited to or held in the Collection Account, the Excess Funding Account, the Series Accounts and any Series Enhancement shall constitute the assets of the Trust (the "Trust Assets"). The foregoing does not constitute and is not intended to result in the creation or 22 31 assumption by the Trust, the Trustee, any Investor Certificateholder or any Series Enhancer of any obligation of Heritage Bank of Commerce or other Account Owner, or the Servicer, the Transferor, any Additional Transferor or any other Person in connection with the Accounts or the Receivables or under any agreement or instrument relating thereto, including any obligation to Obligors, merchant banks, merchant clearance systems, VISA or insurers. Any transfer, assignment, set over and conveyance that this Agreement provides is to be made to the Trust shall be made to the Trustee, on behalf of the Trust and for the benefit of the Certificateholders, and each reference in this Agreement to any such transfer, assignment set over and conveyance shall be construed accordingly. The Transferor agrees to record and file, at its own expense, financing statements (and continuation statements when applicable) with respect to the Receivables now existing and hereafter created meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect, and maintain the perfection of, the transfer and assignment of its interest in the Receivables to the Trustee, and to deliver a file stamped copy of each such financing statement or other evidence of such filing (which may, for purposes of this Section 2.01, consist of telephone confirmation of such filing) to the Trustee on or prior to the Initial Closing Date, in the case of Receivables arising in the Initial Accounts, and (if any additional filing is so necessary) the applicable Addition Date, in the case of Receivables arising in Additional Accounts. The Transferor further agrees, at its own expense, (a) on or prior to (x) the Initial Closing Date, in the case of the Initial Accounts, (y) the applicable Addition Date, in the case of Additional Accounts, and (z) the applicable Removal Date, in the case of Removed Accounts, to cause each Account Owner to indicate in its respective computer files and the Transferor will indicate in its records that Receivables created in connection with the Accounts (other than Removed Accounts) have been conveyed to the Trustee pursuant to this Agreement for the benefit of the Certificateholders (or conveyed to the Transferor or its designee in the case of Removed Accounts) by including (or deleting in the case of Removed Accounts) in such computer files a clearly specified code correctly indicating the ownership of the Receivables, and (b) on or prior to the Initial Closing Date, each Addition Date and each Removal Date, as applicable, to deliver to the Trustee a computer file or microfiche list containing a true and complete list of all such Accounts specifying for each such Account, as of the Initial Cut-Off Date, in the case of the Initial Accounts, the applicable Addition Cut-Off Date, in the case of Additional Accounts, and the applicable Removal Cut-Off Date, in the case of Removed Accounts, its account number, the aggregate amount outstanding in such Account and the aggregate amount of Principal Receivables outstanding in such Account. Such file or list, as supplemented from time to time to reflect Additional Accounts and Removed Accounts, shall be marked as Schedule 1 to this Agreement and is hereby incorporated into and made a part of this Agreement. The Transferor agrees not to alter the code or field referenced in clause (a) above with respect to any Account during the term of this Agreement unless and until such Accounts become Removed Accounts or unless and until (i) the Transferor shall give written notice of any such alteration to the Trustee, such written notice to be as of the date of its receipt by the Trustee incorporated into and made part of this Agreement, and (ii) the Trustee and the Transferor shall execute and file any UCC financing statement or amendment thereof necessitated by such 23 32 alteration. 2.2. Acceptance by Trustee. (a) The Trustee hereby acknowledges its acceptance on behalf of the Trust of all right, title and interest to the property, now existing and hereafter created, conveyed to the Trustee pursuant to Section 2.01 and declares that it shall maintain such right, title and interest, upon the trust herein set forth, for the benefit of all Certificateholders. (b) The Trustee hereby agrees not to disclose to any Person (or to any other department or operating division of the Trustee, other than the corporate trust department of the Trustee or, if the Trustee shall be appointed the Successor Servicer, such other departments or operating divisions of the Trustee as shall be necessary to fulfill its duties as Servicer), any of the account numbers or other information contained in the computer files or microfiche lists marked as Schedule 1 or otherwise delivered to the Trustee from time to time, except (i) to a Successor Servicer or as required by a Requirement of Law applicable to the Trustee, (ii) in connection with the performance of the Trustee's duties hereunder, (iii) in enforcing the rights of Certificateholders, (iv) to bona fide creditors or potential creditors of any Account Owner, the Servicer or any Transferor for the limited purpose of enabling any such creditor to identify Receivables or Accounts subject to this Agreement or the Receivables Transfer Agreements or (v) after consultation with the Transferor, as requested by any Person in connection with the financing statements filed pursuant to this Agreement. The Trustee also agrees not to use any of the foregoing information for any purpose other than for the purposes provided for in this Agreement. The Trustee agrees to take such measures as shall be reasonably requested by the Transferor to protect and maintain the security and confidentiality of such information and, in connection therewith, will allow the Transferor to inspect the Trustee's security and confidentiality arrangements from time to time during normal business hours. The Trustee shall provide the Transferor with notice five Business Days prior to any disclosure pursuant to this subsection 2.02(b). (c) The Trustee shall have no power to create, assume or incur indebtedness or other liabilities in the name of the Trust other than as contemplated in this Agreement or any Supplement. 2.3. Representations and Warranties of Each Transferor Relating to Such Transferor. Each Transferor hereby represents and warrants to the Trust as of each Closing Date (but only if it was a Transferor on such date) that: (a) Organization and Good Standing. Such Transferor is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its organization or incorporation, and has in all material respects, full corporate power and authority to own or lease its properties and conduct its business as such properties are presently owned or leased and such business is presently conducted, to execute, deliver and perform its obligations under this Agreement, any Receivables Transfer Agreement to which it is a party and each applicable Supplement and to execute and deliver to the Trustee the Certificates pursuant hereto. 24 33 (b) Due Qualification. Such Transferor is duly qualified to do business and is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained all necessary licenses and approvals, in each jurisdiction in which failure to so qualify or to obtain such licenses and approvals would (i) render any Cardholder Agreement relating to an Account specified in a Receivables Transfer Agreement with such Transferor or any Receivable transferred to the Trustee by such Transferor unenforceable by such Transferor, the Servicer or the Trustee or (ii) would have a material adverse effect on the interests of the Certificateholders hereunder or under any Supplement; provided, however, that no representation or warranty is made with respect to any qualification, licenses or approvals which the Trustee has or may be required at any time to obtain, if any, in connection with the transactions contemplated hereby. (c) Due Authorization. (i) The execution, delivery and performance of this Agreement, each Receivables Transfer Agreement to which it is a party and each Supplement by such Transferor and the execution and delivery to the Trustee of the Certificates and the consummation by such Transferor of the transactions provided for in this Agreement, each Receivables Transfer Agreement to which it is a party and each Supplement have been duly authorized by such Transferor by all necessary corporate action on the part of such Transferor and (ii) this Agreement, each Receivables Transfer Agreement to which it is a party and each Supplement will remain, from the time of its execution, an official record of such Transferor. (d) No Conflict. The execution and delivery by such Transferor of this Agreement, each Receivables Transfer Agreement to which it is a party, each Supplement and the Certificates, the performance by such Transferor of the transactions contemplated by this Agreement, each Receivables Transfer Agreement to which it is a party and each Supplement and the fulfillment by such Transferor of the terms hereof and thereof applicable to such Transferor will not conflict with or violate any Requirement of Law applicable to such Transferor or conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a material default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which such Transferor is a party or by which it or any of its properties are bound. (e) No Proceedings. There are no proceedings or investigations pending or, to the best knowledge of such Transferor, threatened against such Transferor, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement, any Receivables Transfer Agreement to which it is a party, any Supplement or the Certificates, (ii) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement, any Receivables Transfer Agreement to which it is a party, any Supplement or the Certificates, (iii) seeking any determination or ruling that, in the reasonable judgment of such Transferor, would materially and adversely affect the performance by such Transferor of its obligations under this Agreement, any Receivables Transfer Agreement to which it is a party, or any Supplement, (iv) seeking any determination or ruling that, in the reasonable judgment of such Transferor, materially and adversely affect the validity or enforceability of this Agreement, 25 34 any Receivables Transfer Agreement to which it is a party, any Supplement or the Certificates or (v) seeking to affect adversely the income tax attributes of the Trust or any Certificates under the United States Federal or any State income or franchise tax systems. (f) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or of any governmental body or official required to be obtained, effected or given by such Transferor in connection with the execution and delivery by such Transferor of this Agreement, any Receivables Transfer Agreement to which it is a party, each Supplement and the Certificates, the performance by such Transferor of the transactions contemplated by this Agreement, each Receivables Transfer Agreement to which it is a party and each Supplement and the fulfillment by such Transferor of the terms hereof and thereof, have been duly obtained, effected or given and are in full force and effect except for approvals, authorizations, consents, orders or other actions which if not obtained will not individually or in the aggregate have any material adverse effect upon the ability of the Transferor to perform its obligations hereunder; and provided, however, that such Transferor makes no representation or warranty regarding state securities or "blue sky" laws in connection with the distribution of the Certificates. (g) Insolvency. No Insolvency Event with respect to such Transferor has occurred and the transfer of the Receivables by such Transferor to the Trust has not been made in contemplation of the occurrence thereof. The representations and warranties of each Transferor set forth in this Section 2.03 shall survive the transfer and assignment by such Transferor of the respective Receivables to the Trust. Upon discovery by such Transferor, the Servicer or the Trustee of a breach of any of the representations and warranties by such Transferor set forth in this Section 2.03, the party discovering such breach shall give prompt written notice to the others. Such Transferor agrees to cooperate with the Servicer and the Trustee in attempting to cure any such breach. For purposes of the representations and warranties set forth in this Section 2.03, each reference to a Supplement shall be deemed to refer only to those Supplements in effect as of the relevant Closing Date. 2.4. Representations and Warranties of Each Transferor Relating to the Agreement, the Receivables Transfer Agreements and Any Supplement and the Receivables. (a) Representations and Warranties. Each Transferor hereby represents and warrants to the Trust as of each Closing Date and, with respect to Additional Accounts the Receivables in which are being transferred by such Transferor to the Trust, as of the related Addition Date (but only if, in either case, it was a Transferor on such date) that: (i) this Agreement, any Receivables Transfer Agreement to which it is a party, each Supplement and, in the case of Additional Accounts, the related Assignment, each constitutes a legal, valid and binding obligation of such Transferor enforceable against such Transferor in accordance with its terms, except as such enforceability may be 26 35 limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally from time to time in effect or general principles of equity (whether considered in a suit at law or in equity); (ii) as of the Initial Cut-Off Date and as of the related Addition Date with respect to Additional Accounts, the portion of Schedule 1 to this Agreement under such Transferor's name, as supplemented on such date, is an accurate and complete listing of all the Accounts the Receivables in which were transferred by such Transferor as of the Initial Cut-Off Date or such Addition Cut-Off Date, as the case may be, and the information contained therein with respect to the identity of such Accounts and the Receivables existing thereunder is true and correct as of the Initial Cut-Off Date or such Addition Cut-Off Date, as the case may be; (iii) each Receivable conveyed to the Trustee by such Transferor has been conveyed to the Trust free and clear of any Lien of any Person claiming through or under such Transferor or any of its Affiliates (other than Liens permitted under subsection 2.07(b)) and in compliance with all Requirements of Law applicable to such Transferor; (iv) all authorizations, consents, orders or approvals of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by such Transferor in connection with the conveyance by such Transferor of Receivables to the Trust have been duly obtained, effected or given and are in full force and effect; (v) either this Agreement or, in the case of Additional Accounts, the related Assignment constitutes an absolute sale, transfer and assignment to the Trustee of all right, title and interest of such Transferor in the Receivables conveyed to the Trustee by such Transferor and the proceeds thereof or, if this Agreement or, in the case of Additional Accounts, the related Assignment does not constitute an absolute sale of such property, it constitutes a grant by such Transferor of a "security interest" (as defined in the UCC) in such property to the Trustee, which, in the case of existing Receivables and the proceeds thereof, is enforceable upon execution and delivery of this Agreement or, with respect to then-existing Receivables in Additional Accounts, as of the applicable Addition Date, and which will be enforceable with respect to such Receivables hereafter and thereafter created and the proceeds thereof upon such creation. Upon the filing of the financing statements pursuant to Sections 2.01 and 2.09 and, in the case of Receivables hereafter created and the proceeds thereof, upon the creation thereof, the Trustee shall have a first priority perfected security or ownership interest in such property and proceeds except for (x) Liens permitted under subsection 2.07(b), (y) the interests of the Transferor as Holder of the Transferor Certificate or any Supplemental Certificate, and (z) the 27 36 Transferor's right, if any, to interest accruing on and investment earnings, if any, in respect of the Collection Account or any Series Account, as provided in this Agreement or the related Supplement; provided, however, that such Transferor makes no representation or warranty with respect to the effect of Section 9-306 of the UCC on the rights of the Trustee to proceeds held by such Transferor; (vi) except as otherwise expressly provided in this Agreement or any Supplement, neither such Transferor nor any Person claiming through or under such Transferor has any claim to or interest in the Collection Account, the Excess Funding Account, any Series Account or any Series Enhancement; (vii) on the Initial Cut-Off Date, each Initial Account specified in Schedule 1 with respect to such Transferor is an Eligible Account and, on the applicable Addition Cut-Off Date, each related Additional Account specified in Schedule 1 with respect to such Transferor is an Eligible Account; (viii) on the Initial Cut-Off Date, each Receivable then existing and conveyed to the Trustee by such Transferor is an Eligible Receivable and, on the applicable Addition Cut-Off Date, each Receivable contained in any related Additional Account and conveyed to the Trustee by such Transferor is an Eligible Receivable; (ix) as of the date of the creation of any new Receivable in an Account specified in a Receivables Transfer Agreement with such Transferor, such Receivable is an Eligible Receivable; and (x) no selection procedures believed by such Transferor to be materially adverse to the interests of the Investor Certificateholders have been used in selecting the Initial Accounts or Additional Accounts. (b) Notice of Breach. The representations and warranties of each Transferor set forth in this Section 2.04 shall survive the transfer and assignment by such Transferor of Receivables to the Trustee. Upon discovery by such Transferor, the Servicer or the Trustee of a breach of any of the representations and warranties by such Transferor set forth in this Section 2.04, the party discovering such breach shall give prompt written notice to the others. Such Transferor agrees to cooperate with the Servicer and the Trustee in attempting to cure any such breach. For purposes of the representations and warranties set forth in this Section 2.04, each reference to a Supplement shall be deemed to refer only to those Supplements in effect as of the date of the relevant representations or warranties. 2.5. Reassignment of Ineligible Receivables. (a) Reassignment of Receivables. In the event (i) any 28 37 representation or warranty contained in subsection 2.04(a)(ii), (iii), (iv), (vii), (viii), (ix) or (x) is not true and correct in any material respect as of the date specified in the applicable subsection with respect to any Account or the related Receivables transferred to the Trust by such Transferor and as a result of such breach any Receivables in the related Account become Defaulted Receivables or the Trust's rights in, to or under such Receivables or the proceeds of such Receivables are impaired or such proceeds are not available for any reason to the Trust free and clear of any Lien, unless cured within 60 days (or such longer period, not in excess of 150 days, as may be agreed to by the Trustee) after the earlier to occur of the discovery thereof by such Transferor or receipt by such Transferor of notice thereof given by the Trustee, or (ii) it is so provided in subsection 2.07(a) with respect to any Receivables transferred to the Trust by such Transferor, then such Transferor shall accept reassignment of all Receivables in the related Account ("Ineligible Receivables") on the terms and conditions set forth in paragraph (b) below; provided, however, that such Receivables will not be deemed to be Ineligible Receivables and will not be reassigned to such Transferor if, on any day prior to the end of such 60-day or longer period, (x) either (a) in the case of an event described in clause (i) above the relevant representation and warranty shall be true and correct in all material respects as if made on such day or (b) in the case of an event described in clause (ii) above the circumstances causing such Receivable to become an Ineligible Receivable shall no longer exist and (y) such Transferor shall have delivered to the Trustee an Officer's Certificate describing the nature of such breach and the manner in which the relevant representation and warranty became true and correct. The Transferor will notify the Rating Agencies of any such breach that is not cured within the time periods specified above. (b) Price of Reassignment. The Servicer shall deduct the portion of the Ineligible Receivables reassigned to each Transferor which are Principal Receivables from the aggregate amount of Principal Receivables used to calculate the Transferor Amount, the Series Percentages and any other percentage used to allocate within or among Series that is applicable to any Series. In the event that, following the exclusion of such Principal Receivables from the calculation of the Transferor Amount, the Transferor Amount would be less than the Required Transferor Amount, not later than 12:00 noon, New York City time, on the first Distribution Date following the Monthly Period in which such reassignment obligation arises, the relevant Transferor shall make a deposit into the Excess Funding Account in immediately available funds in an amount equal to the amount by which the Transferor Amount would be reduced below the Required Transferor Amount (up to the amount of such Principal Receivables). Upon the deposit, if any, required to be made to the Excess Funding Account as provided in this Section and the reassignment of Ineligible Receivables, the Trustee, on behalf of the Trust, shall automatically and without further action be deemed to transfer, assign, set over and otherwise convey to the relevant Transferor or its designee, without recourse, representation or warranty, all the right, title and interest of the Trust in and to such Ineligible Receivables, all monies due or to become due and all amounts received with respect thereto and all proceeds thereof. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the relevant Transferor to effect the conveyance of Ineligible Receivables pursuant to this Section. The obligation of each Transferor 29 38 to accept reassignment of any Ineligible Receivables, and to make the deposits, if any, required to be made to the Excess Funding Account as provided in this Section, shall constitute the sole remedy respecting the event giving rise to such obligation available to Certificateholders (or the Trustee on behalf of the Certificateholders). 2.6. Reassignment of Receivables in Trust Portfolio. In the event any representation or warranty of a Transferor set forth in subsection 2.03(a) or (c) or subsection 2.04(a)(i), (v) or (vi) is not true and correct in any material respect and such breach has a material adverse effect on the Certificateholders' Interest in the Receivables transferred to the Trust by such Transferor, then either the Trustee or the Holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount, by notice then given to such Transferor and the Servicer (and to the Trustee if given by the Investor Certificateholders), may direct such Transferor to accept a reassignment of the Receivables transferred to the Trust by such Transferor if such breach and any material adverse effect caused by such breach is not cured within 60 days of such notice (or within such longer period, not in excess of 150 days, as may be specified in such notice), and upon those conditions such Transferor shall be obligated to accept such reassignment on the terms set forth below; provided, however, that such Receivables will not be reassigned to such Transferor if, on any day prior to the end of such 60-day or longer period (i) the relevant representation and warranty shall be true and correct in all material respects as if made on such day and (ii) such Transferor shall have delivered to the Trustee a certificate of an authorized officer describing the nature of such breach and the manner in which the relevant representation and warranty became true and correct. The Transferor will notify the Rating Agencies of any such breach that is not cured within the time periods specified above. The relevant Transferor shall deposit in the Collection Account in immediately available funds not later than 12:00 noon, New York City time, on the first Distribution Date following the Monthly Period in which such reassignment obligation arises, in payment for such reassignment, an amount equal to the sum of the amounts specified therefor with respect to each outstanding Series in the related Supplement. Notwithstanding anything to the contrary in this Agreement, such amounts shall be distributed on such Distribution Date in accordance with Article IV and the terms of each Supplement. Upon the deposit, if any, required to be made to the Collection Account as provided in this Section and the reassignment of the Receivables, the Trustee, on behalf of the Trust, shall automatically and without further action be deemed to transfer, assign, set over and otherwise convey to the relevant Transferor or its designee, without recourse, representation or warranty, all the right, title and interest of the Trust in and to such Receivables, all monies due or to become due and all amounts received with respect thereto and all proceeds thereof. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the relevant Transferor to effect the conveyance of such Receivables pursuant to this Section. The obligation of each Transferor to accept reassignment of any Receivables, and to make the deposits, if any, required to be made to the Collection Account as provided in this section, shall constitute the sole remedy respecting the event giving rise to such obligation available to Certificateholders (or the Trustee on behalf of the Certificateholders) or any Series Enhancer. 30 39 2.7. Covenants of the Transferor. Each Transferor hereby covenants as follows: (a) Receivables to be Accounts or General Intangibles. Except in connection with the enforcement or collection of a Receivable, such Transferor will take no action to cause any Receivable transferred by it to the Trust to be evidenced by any instrument or chattel paper (as defined in the UCC) and, if any such Receivable is so evidenced, it shall be deemed to be an Ineligible Receivable in accordance with subsection 2.05(a) and shall be reassigned to such Transferor in accordance with subsection 2.05(b). (b) Security Interests. Except for the conveyances hereunder, such Transferor will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Receivable transferred by it to the Trust, whether now existing or hereafter created, or any interest therein; such Transferor will immediately notify the Trustee of the existence of any Lien on any such Receivable; and such Transferor shall defend the right, title and interest of the Trust in, to and under such Receivables, whether now existing or hereafter created, against all claims of third parties claiming through or under such Transferor; provided, however, that nothing in this subsection 2.07(b) shall prevent or be deemed to prohibit such Transferor from suffering to exist upon any of the Receivables transferred by it to the Trust any Liens for municipal or other local taxes if such taxes shall not at the time be due and payable or if such Transferor shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (c) Transferor's Interest. Except for the conveyances hereunder, in connection with any transaction permitted by Section 7.02 and as provided in Sections 2.09(e) and 6.03, such Transferor agrees not to transfer, assign, exchange or otherwise convey or pledge, hypothecate or otherwise grant a security interest in the Transferor's Interest represented by the Transferor Certificate or any Supplemental Certificate and any such attempted transfer, assignment, exchange, conveyance, pledge, hypothecation or grant shall be void. (d) Delivery of Collections. In the event that such Transferor receives Collections, such Transferor agrees to pay the Servicer all such Collections as soon as practicable after receipt thereof but in no event later than two Business Days after the Date of Processing by the Transferor. (e) Notice of Liens. Such Transferor shall notify the Trustee promptly after becoming aware of any Lien on any Receivable other than the conveyances hereunder and under the Receivables Transfer Agreements or Liens permitted under subsection 2.07(b). (f) Other Indebtedness. Such Transferor shall not incur any additional debt, unless the Rating Agency is provided with notice no later than the fifth Business Day prior to the incurrence of such additional debt (unless the right to such notice is waived by the Rating Agency) and the Rating Agency Condition is satisfied with respect to the incurrence of such debt. 31 40 (g) Separate Corporate Existence. Such Transferor shall: (i) Maintain in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement and any Receivables Transfer Agreement to which it is a party and each other instrument or agreement necessary or appropriate to proper administration hereof and permit and effectuate the transactions contemplated hereby. (ii) Maintain its own bank or securities account or accounts, separate from those of any Affiliate of such Transferor, with commercial financial institutions. The funds and other property of such Transferor will not be diverted to any other Person or for other than the corporate use of such Transferor and, except as may be expressly permitted by this Agreement or any Receivables Transfer Agreement to which it is a party, the funds and other property of such Transferor shall not be commingled with those of any Affiliate of such Transferor. (iii) Ensure that, to the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees. (iv) Ensure that, to the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that such Transferor contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods and services are provided, and each such entity shall bear its fair share of such costs. All material transactions between such Transferor and any of its Affiliates shall be only on an arm's-length basis and shall receive the approval of such Transferor's Board of Directors including at least one Independent Director (defined below). (v) Maintain a principal executive and administrative office through which its business is conducted and a telephone number separate from those of its stockholders and Affiliates. To the extent that such Transferor and any of its stockholders or Affiliates have offices in 32 41 contiguous space, there shall be fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses. (vi) Conduct its affairs strictly in accordance with its Certificate of Incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of such meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, payroll and intercompany transaction accounts. Regular stockholders' and directors' meetings shall be held at least annually. (vii) Ensure that its Board of Directors shall at all times include at least one Independent Director (for purposes hereof, "Independent Director" shall mean a duly appointed director of such Transferor who shall not have been, at the time of such appointment or at any time in the preceding five years, (i) a direct or indirect legal or beneficial owner (beyond a nominal amount) of such Transferor or more than 5% of the outstanding voting stock of any of its Affiliates, (ii) a creditor, supplier, employee, officer, director, family member, manager or contractor of such Transferor or any of its Affiliates, or (iii) a person who controls (whether directly, indirectly or otherwise) such Transferor or any of its Affiliates or any creditor, supplier, employee, officer, director, manager or contractor of such Transferor or any of its Affiliates). (viii) Ensure that decisions with respect to its business and daily operations shall be independently made by such Transferor (although the officer making any particular decision may also be an officer or director of an Affiliate of such Transferor) and shall not be dictated by an Affiliate of such Transferor. (ix) Act solely in its own corporate name and through its own authorized officers and agents, and no Affiliate of such Transferor shall be appointed to act as agent of such Transferor, except as expressly contemplated by this Agreement or any Receivables Transfer Agreement to which it is a party. The Transferor shall at all times use its own stationery. (x) Ensure that no Affiliate of such Transferor shall advance funds to such Transferor and no Affiliate of such Transferor will otherwise guaranty debts of such Transferor. 33 42 (xi) Other than organizational expenses and as expressly provided herein, pay all expenses, indebtedness and other obligations incurred by it. (xii) Not enter into any guaranty, or otherwise become liable, with respect to any obligation of any Affiliate of such Transferor nor shall such Transferor make any loans to any Person. (xiii) Ensure that any financial reports required of such Transferor shall be issued separately from, but may be consolidated with, any reports prepared for any of its Affiliates so long as such consolidated reports contain footnotes describing the effect of the transactions between the Transferor and such Affiliate and also state that the assets of the Transferor are not available to pay creditors of the Affiliate. (xiv) Ensure that at all times it is adequately capitalized to engage in the transactions contemplated in its Certificate of Incorporation. (h) Interchange. With respect to any Distribution Date, on or prior to the immediately preceding Determination Date, the Servicer shall notify the Transferor of the amount of Interchange required to be included as Collections of Finance Charge Receivables with respect to such Monthly Period. Not later than 3:00 p.m., New York City time, on the related Transfer Date, the Transferor shall deposit into the Collection Account, in immediately available funds, the amount of Interchange to be so included as Collections of Finance Charge Receivables with respect to such Monthly Period. 2.8. Covenants of Each Transferor with Respect to Receivables Transfer Agreements. Each Transferor hereby covenants that it will at all times enforce the covenants and agreements of the Account Owners under the terms of the Receivables Transfer Agreements to which it is a party, including covenants to the effect set forth below: (a) Periodic Finance Charges and Other Fees. (i) Except (x) as otherwise required by any Requirements of Law, or (y) as is deemed by the Account Owner to be necessary in order for it to maintain its credit card business on a competitive basis based on a good faith assessment by it of the nature of its competition in the credit card business, it shall not at any time reduce the annual percentage rate of the Periodic Finance Charges assessed on the Receivables transferred by it to the Transferor or other fees charged on any of the Accounts owned by it if, as a result of any such reduction, either (i) such Account Owner's reasonable expectation is that such reduction will cause a Pay Out Event or Reinvestment Event to occur or (ii) such reduction is not also applied to any comparable segments of consumer revolving credit card accounts owned by such Account Owner which have characteristics the same as, or substantially similar to, such Accounts. (b) Cardholder Agreements and Credit Card Guidelines. Such Account Owner shall comply with and perform its obligations under the Cardholder Agreements relating to the Accounts owned by it and the Credit Card Guidelines and all applicable rules and regulations of VISA except insofar as any failure so to comply or perform would not materially and adversely affect the rights of the Trust or the Certificateholders hereunder. Subject to compliance with all Requirements of Law and paragraph (a) above, such Account Owner may 34 43 change the terms and provisions of the Cardholder Agreements or the Credit Card Guidelines with respect to any of the Accounts owned by it in any respect (including the calculation of the amount or the timing of charge-offs and the Periodic Finance Charges and other fees to be assessed thereon) only if in the reasonable judgment of such Account Owner such change is made applicable to any comparable segment of the consumer revolving credit card accounts owned by such Account Owner which have characteristics the same as, or substantially similar to, such Accounts. Notwithstanding the above, unless required by Requirements of Law or as permitted by Section 2.08(a), no Account Owner will take any action with respect to the applicable Credit Card Agreements or the applicable Credit Card Guidelines, which, at the time of such action, the Account Owner reasonably believes will have a material adverse effect on the Investor Certificateholders. (c) VISA. Such Account Owner, to the extent applicable to Accounts owned or serviced by such Account Owner, shall use its best efforts to remain, either directly or indirectly, a member in good standing of the VISA system and any other similar entity's or organization's system relating to any other type of consumer revolving credit card accounts included as Accounts. Each Transferor further covenants that it will not enter into any amendments to a Receivables Transfer Agreement or enter into a new Receivables Transfer Agreement unless the Rating Agency Condition has been satisfied. 2.9. Addition of Accounts. (a) Additional Accounts. (i) Required Additions. If on any Determination Date, as of the close of business on the last Business Day of the preceding Monthly Period, the Transferor Amount is less than the Required Transferor Amount, the Transferor shall on or prior to the close of business on the 10th Business Day following such Determination Date (the "Required Designation Date"), unless the Transferor Amount exceeds the Required Transferor Amount as of the close of business on any day after the last Business Day of such Monthly Period and prior to the Required Designation Date, cause to be designated additional Eligible Accounts to be included as Accounts as of the Required Designation Date or any earlier date in a sufficient amount such that, after giving effect to such addition, the Transferor Amount as of the close of business on the applicable Addition Date is at least equal to the Required Transferor Amount on such date. The failure of any condition set forth in paragraph (c) below, as the case may be, shall not relieve the Transferor of its obligation pursuant to this paragraph; provided, however, that the failure of the Transferor to transfer Receivables to the Trust as provided in this clause (i) solely as a result of the unavailability of a sufficient amount of Eligible Receivables shall not constitute a breach of this Agreement; provided further, that any such failure which has not been timely cured may nevertheless result in the occurrence 35 44 of a Pay Out Event or Reimbursement Event. (ii) Optional Participation Interests. In lieu of, or in addition to, designating Additional Accounts pursuant to clause (i) above, the Transferor may, subject to the conditions specified in paragraph (c) below, convey to the Trust participations (including 100% participations) representing undivided interests in a pool of assets primarily consisting of revolving credit card receivables and any interests in any of the foregoing, including securities representing or backed by such receivables and collections thereon ("Participation Interests"). The addition of Participation Interests in the Trust pursuant to this paragraph (a) or paragraph (b) below shall be effected by a Participation Interest Supplement, dated the applicable Addition Date and entered into pursuant to subsection 13.01(a). (b) Restricted Additions. Each Transferor may from time to time, at its sole discretion, subject to the conditions specified below, designate additional Eligible Accounts to be included as Accounts or Participation Interests to be included as Trust Assets, in either case as of the applicable Addition Date. (c) Conditions to Required Additions, Optional Participation Interests and Restricted Additions. On the Addition Date with respect to any Additional Accounts or Participation Interests designated pursuant to subsection 2.09(a) or (b), the Transferor shall transfer the Receivables in such Additional Accounts (and such Additional Accounts shall be deemed to be Accounts for purposes of this Agreement) or shall transfer such Participation Interests, in each case as of the close of business on the applicable Addition Date, subject to the satisfaction of the following conditions: (i) on or before the tenth Business Day immediately preceding the Addition Date, each Transferor which owns any such Additional Account or is transferring any such Participation Interest to the Trust (a "Participating Transferor") shall have given the Trustee and each Rating Agency written notice that the Additional Accounts or Participation Interests will be included and specifying the applicable Addition Date, the Addition Cut-Off Date, and the approximate number of accounts expected to be added and the approximate aggregate balances expected to be outstanding in the accounts to be added (in the case of Additional Accounts); (ii) in the case of Additional Accounts, the Participating Transferor shall have delivered to the Trustee copies of UCC-1 financing statements covering such Additional Accounts, if necessary to perfect the Trust's interest in the Receivables arising therein; (iii) as of each of the Addition Cut-Off Date and the Addition Date, no Insolvency Event with respect to the Participating Transferor or the Account Owner of the Additional Accounts shall have occurred nor shall the transfer of the Receivables arising in the Additional 36 45 Accounts or of the Participation Interests to the Trust have been made in contemplation of the occurrence thereof; (iv) except in the case of an Addition pursuant to subsection 2.09(a)(i), the Rating Agency Condition shall have been satisfied; (v) each Participating Transferor shall have delivered to the Trustee an Officer's Certificate, dated the Addition Date, stating that (x) in the case of Additional Accounts, as of the applicable Addition Cut-Off Date, the Additional Accounts are all Eligible Accounts, (y) to the extent applicable, the conditions set forth in clauses (ii) through (iv) above and (viii) below have been satisfied and (z) such Participating Transferor reasonably believes that the addition by such Participating Transferor of the Receivables arising in the Additional Accounts or of the Participation Interests to the Trust will not, based on the facts known to such officer at the time of such addition, then or thereafter result in an Adverse Effect with respect to any Series; (vi) the Participating Transferors shall have delivered to the Trustee and each Rating Agency an Opinion of Counsel, dated the Addition Date, in accordance with subsection 13.02(d); (vii) in the case of designation of Additional Accounts, Participating Transferors shall have delivered to the Trustee (x) the computer file or microfiche list required to be delivered pursuant to Section 2.01 with respect to such Additional Accounts and (y) a duly executed, written assignment (including an acceptance by the Trustee for the benefit of the Certificateholders), substantially in the form of Exhibit B (the "Assignment"); and (viii) to the extent required by Section 4.03, the Servicer shall have deposited in the Collection Account all Collections with respect to such Automatic Additional Accounts since the Addition Cut-off Date. (d) Automatic Account Additions. (i) Each Transferor may from time to time, at its sole discretion, subject to and in compliance with the limitations specified below, designate Eligible Accounts ("Automatic Additional Accounts") to be included as Accounts as of the applicable Addition Date. For purposes of this paragraph, Eligible Accounts shall be deemed to include only consumer revolving credit card accounts of the same nature as those included as Initial Accounts. (ii) Within 30 days after the Addition Date with respect to any Automatic Additional Accounts, the relevant 37 46 Transferor shall have delivered to the Trustee and each Rating Agency an Opinion of Counsel in accordance with subsection 13.02(d), with respect to the Automatic Additional Accounts included as Accounts on such Addition Date, confirming the validity and perfection of the transfer of such Automatic Additional Accounts. If such Opinion of Counsel with respect to any Automatic Additional Accounts is not so received, the ability of such Transferor to designate Automatic Additional Accounts will be suspended until such time as each Rating Agency otherwise consents in writing. If such Transferor is unable to deliver an Opinion of Counsel with respect to any Automatic Additional Account, such inability shall be deemed to be a breach of the representation in subsection 2.04(a)(viii) with respect to the Receivables in such Automatic Additional Account for purposes of Section 2.05; provided, that the cure period for such breach shall not exceed 30 days. (iii) Each Participating Transferor shall have delivered to the Trustee copies of UCC-1 financing statements covering such Automatic Additional Accounts, if necessary to perfect the Trust's interest in the Receivables arising therein. (iv) As of each of the Addition Cut-Off Date and the Addition Date, no Insolvency Event with respect to any Participating Transferor or the Account Owner of the Additional Accounts shall have occurred nor shall the transfer of the Receivables arising in the Automatic Additional Accounts to the Trust have been made in contemplation of the occurrence thereof. (v) Each Participating Transferor shall have delivered to the Trustee an Officer's Certificate, dated the Addition Date, stating that (x) as of the applicable Addition Cut-Off Date, such Automatic Additional Accounts are all Eligible Accounts, (y) to the extent applicable, the conditions set forth in clauses (ii) through (v) above have been satisfied and (z) such Participating Transferor reasonably believes that the addition by such Participating Transferor of the Receivables arising in such Automatic Additional Accounts will not, based on the facts known to such officer at the time of such addition, then or thereafter result in an Adverse Effect with respect to any Series. (vi) The Participating Transferor shall have delivered to the Trustee (x) the computer file or microfiche list required to be delivered pursuant to Section 2.01 with respect to such Automatic Additional Accounts and (y) a duly executed Assignment. (e) Additional Transferors. The Transferor may designate Affiliates of NextCard, Inc. to be included as Transferors ("Additional Transferors") under this Agreement by an amendment hereto pursuant to subsection 13.01(a) and, in connection with such designation, the Transferor shall surrender the Transferor Certificate to the Trustee in exchange for a newly issued Transferor Certificate modified to reflect such Additional 38 47 Transferor's interest in the Transferor's Interest; provided, however, that prior to any such designation and exchange the conditions set forth in subsection 6.03(c) or 6.03(d), as applicable, shall have been satisfied with respect thereto. 2.10. Removal of Accounts and Participation Interests. On any day of any Monthly Period each Transferor shall have the right to designate certain Accounts to be removed as Accounts and to require the reassignment to it or its designee of all the Trust's right, title and interest in, to and under the Receivables then existing and thereafter created in such Removed Accounts, all monies due or to become due and all amounts received with respect thereto and all proceeds thereof in or with respect to such Accounts or Participation Interests conveyed to the Trust by a Transferor. The removal of Accounts specified for removal (the "Removed Accounts") and Participation Interests specified for removal ("Removed Participation Interests") are subject to the satisfaction of the following conditions: (a) on or before the fifth Business Day immediately preceding the Removal Date (the "Removal Notice Date"), such Transferor shall have given the Trustee, the Servicer, each Rating Agency and any Series Enhancer written notice of such removal, specifying the date for removal of the Removed Accounts or Participation Interests (the "Removal Date"); (b) with respect to Removed Accounts, on or prior to the Removal Date, such Transferor shall have amended Schedule 1 by delivering to the Trustee a computer file or microfiche list containing a true and complete list of the Removed Accounts specifying for each such Account, as of the last day of the Monthly Period preceding the Removal Notice Date (the "Removal Cut-Off Date"), its account number, the aggregate amount outstanding in such Account and the aggregate amount of Principal Receivables outstanding in such Account; (c) with respect to Removed Accounts, such Transferor shall have represented and warranted as of the Removal Date that the list of Removed Accounts delivered pursuant to paragraph (b) above, as of the Removal Cut-Off Date, is true and complete in all material respects; (d) the Rating Agency Condition shall have been satisfied with respect to such removal; (e) such Transferor shall have delivered to the Trustee an Officer's Certificate, dated the Removal Date, to the effect that such Transferor reasonably believes that (i) such removal will not, based on the facts known to such officer at the time of such certification, then or thereafter cause an Adverse Effect to occur with respect to any Series, (ii) no selection procedure believed by such Transferor to be materially adverse to the interests of the Investor Certificateholders of any Series as of the Removal Date have been used in selecting the Removed Accounts or Participation Interests, (iii) to the extent applicable, the conditions set forth in subsections (c), (d) and (f) of this Section 2.10 have been satisfied and (iv) no selection procedure was used which was intended to include a disproportionately higher level of Defaulted Receivables in the Removed Accounts than exist in the Accounts and the removal of such Accounts is not for the intended purpose of mitigating losses to the Trust; and 39 48 (f) as of the Removal Cut-Off Date, no more than 10% of the Receivables outstanding are more than thirty days Contractually Delinquent. Upon satisfaction of the above conditions, the Trustee shall execute and deliver to the relevant Transferor or its designee a written reassignment in substantially the form of Exhibit C (the "Reassignment") and shall, without further action, be deemed to transfer, assign, set over and otherwise convey to such Transferor or its designee, effective as of the Removal Date, without recourse, representation or warranty, all the right, title and interest of the Trust in and to the Participation Interests or Receivables arising in the Removed Accounts, all monies due and to become due and all amounts received with respect thereto and all proceeds thereof. In addition, the Trustee shall execute such other documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the relevant Transferor to effect the conveyance of Participation Interests or Receivables pursuant to this Section 2.10. 2.11. Account Allocations. In the event that any Transferor is unable for any reason to transfer Receivables to the Trust in accordance with the provisions of this Agreement, including by reason of the application of the provisions of Section 9.02 or any order of any Governmental Authority (a "Transfer Restriction Event"), then, in any such event, (a) such Transferor and the Servicer agree (except as prohibited by any such order) to allocate and pay to the Trust, after the date of such inability, all Collections of Receivables transferred to the Trust by such Transferor, including Collections of Receivables transferred to the Trust by such Transferor prior to the occurrence of such event, and all amounts which would have constituted Collections but for such Transferor's inability to transfer Receivables (up to an aggregate amount equal to the amount of Receivables transferred to the Trust by such Transferor in the Trust on such date), (b) such Transferor and the Servicer agree that such amounts will be applied as Collections in accordance with Article IV and the terms of each Supplement and (c) for so long as the allocation and application of all Collections and all amounts that would have constituted Collections are made in accordance with clauses (a) and (b) above, Principal Receivables and all amounts which would have constituted Principal Receivables but for such Transferor's inability to transfer Receivables to the Trust which are written off as uncollectible in accordance with this Agreement shall continue to be allocated in accordance with Article IV and the terms of each Supplement. For the purpose of the immediately preceding sentence, such Transferor and the Servicer shall treat the first received Collections with respect to the Accounts as allocable to the Trust until the Trust shall have been allocated and paid Collections in an amount equal to the aggregate amount of Principal Receivables in the Trust as of the date of the occurrence of such event. If such Transferor or the Servicer is unable pursuant to any Requirements of Law to allocate Collections as described above, such Transferor and the Servicer agree that, after the occurrence of such event, payments on each Account with respect to the principal balance of such Account shall be allocated first to the oldest principal balance of such Account and shall have such payments applied as Collections in accordance with Article IV and the terms of each Supplement. The parties hereto agree that Finance Charge Receivables, whenever created, accrued in respect of Principal Receivables which have been conveyed to the Trust shall continue to be a part of the Trust notwithstanding any cessation of the transfer of additional Principal Receivables to the Trust and Collections with respect thereto shall continue to be allocated and paid in accordance with Article IV and the 40 49 terms of each Supplement. 2.12. Discount Option. (a) The Transferor shall have the option to designate at any time and from time to time a percentage or percentages, which may be a fixed percentage or a variable percentage based on a formula (the "Discount Percentage"), of all or any specified portion of Principal Receivables created after the Discount Option Date to be treated as Finance Charge Receivables ("Discount Option Receivables"). The Transferor shall also have the option of increasing, reducing or withdrawing the Discount Percentage, at any time and from time to time, on and after such Discount Option Date. The Transferor shall provide to the Servicer, the Trustee and any Rating Agency 30 days' prior written notice of the Discount Option Date, and such designation shall become effective on the Discount Option Date (i) unless such designation in the reasonable belief of the Transferor would cause a Pay Out Event or Reinvestment Event with respect to any Series to occur, or an event which, with notice or lapse of time or both, would constitute a Pay Out Event or Reinvestment Event with respect to any Series and (ii) only if the Rating Agency Condition shall have been satisfied with respect to such designation. (b) After the Discount Option Date, Discount Option Receivable Collections shall be treated as Collections of Finance Charge Receivables. ARTICLE III Administration and Servicing of Receivables 3.1. Acceptance of Appointment and Other Matters Relating to the Servicer. (a) NextCard, Inc. agrees to act as the Servicer under this Agreement and the Certificateholders by their acceptance of Certificates consent to NextCard, Inc. acting as Servicer. (b) The Servicer shall service and administer the Receivables, shall collect payments due under the Receivables and shall charge off as uncollectible Receivables, all in accordance with its customary and usual servicing procedures for servicing credit card receivables comparable to the Receivables and in accordance with the Credit Card Guidelines. The Servicer shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable. Without limiting the generality of the foregoing, subject to Section 10.01 and provided NextCard, Inc. is the Servicer, the Servicer or its designee is hereby authorized and empowered (i) unless such power and authority is revoked by the Trustee as a result of the occurrence of a Servicer Default, to make withdrawals and payments or to instruct the Trustee in writing to make withdrawals and payments from the Collection Account, the Excess Funding Account and any Series Account, as set forth in this Agreement or any Supplement, and (ii) to take any action required or permitted under any Series 41 50 Enhancement, as set forth in this Agreement or any Supplement. Without limiting the generality of the foregoing and subject to Section 10.01, the Servicer or its designee is hereby authorized and empowered to make any filings, reports, notices, applications and registrations with, and to seek any consents or authorizations from, the Commission and any state securities authority on behalf of the Trust as may be necessary or advisable to comply with any Federal or state securities laws or reporting requirements. The Trustee shall furnish the Servicer with any powers of attorney or other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. (c) The Servicer shall not be obligated to use separate servicing procedures, offices, employees or accounts for servicing the Receivables from the procedures, offices, employees and accounts used by the Servicer in connection with servicing other credit card receivables. (d) The Servicer shall comply with and perform its servicing obligations with respect to the Accounts and Receivables in accordance with the Cardholder Agreements relating to the Accounts and the Credit Card Guidelines and all applicable rules and regulations of VISA and any other similar entity or organization relating to any other type of consumer revolving credit card accounts included as Accounts, except insofar as any failure to so comply or perform would not materially and adversely affect the Trust or the Investor Certificateholders. (e) The Servicer shall pay out of its own funds, without reimbursement except as provided in Section 3.02, all expenses incurred in connection with the Trust and the servicing activities hereunder including expenses related to enforcement of the Receivables, fees and disbursements of the Trustee, any Paying Agent and any Transfer Agent and Registrar and independent accountants and all other fees and expenses, including the costs of filing UCC financing and continuation statements, any stamp, documentary, excise, property (whether on real, personal or intangible property) or any similar tax levied on the Trust or the Trust's assets that are not expressly stated in this Agreement to be payable by the Trust or the Transferor (other than Federal, state, local and foreign income, franchise and other taxes, if any, or any interest or penalties with respect thereto, assessed on the Trust). (f) The Servicer agrees that upon a request by the Transferor it will use its reasonable best efforts to obtain and maintain the listing of the Investor Certificates of any Series or Class on any specified security exchange. If any such request is made, the Servicer shall give notice to the Transferor and the Trustee on the date on which such Investor Certificates are approved for such listing and within three Business Days following receipt of notice by the Servicer of any actual, proposed or contemplated delisting of such Investor Certificates by any such securities exchange. The Trustee or the Servicer, each in its sole discretion, may terminate any listing on any such securities exchange at any time subject to the notice requirements set forth in the preceding sentence. 3.2. Servicing Compensation. As full compensation for its servicing activities hereunder and as reimbursement for any expense incurred by it in 42 51 connection therewith, the Servicer shall be entitled to receive a servicing fee (the "Servicing Fee") with respect to each Monthly Period, payable monthly on the related Distribution Date, in an amount equal to one-twelfth of the product of (a) the weighted average of the Servicing Fee Rates with respect to each outstanding Series (based upon the Servicing Fee Rate for each Series and the Invested Amount (or such other amount as specified in the related Supplement) of such Series, in each case as of the last day of the prior Monthly Period) and (b) the amount of Principal Receivables on the last day of the prior Monthly Period. The share of the Servicing Fee allocable to (i) the Certificateholders' Interest of a particular Series with respect to any Monthly Period (the "Monthly Servicing Fee") and (ii) the Enhancement Investor Amount, if any, of a particular Series with respect to any Monthly Period will each be determined in accordance with the relevant Supplement. The portion of the Servicing Fee with respect to any Monthly Period not so paid by the Certificateholders' Interest or the Enhancement Investor Amount, if any, of a particular Series shall be paid by the Holders of the Transferor Certificates on the related Distribution Date and in no event shall the Trust, the Trustee, the Investor Certificateholders of any Series or any Series Enhancer be liable for the share of the Servicing Fee with respect to any Monthly Period to be paid by the Holders of the Transferor Certificates. 3.3. Representations, Warranties and Covenants of the Servicer. NextCard, Inc., as initial Servicer, hereby makes, and any Successor Servicer by its appointment hereunder shall make, on each Closing Date (and on the date of any such appointment), the following representations, warranties and covenants: (a) Organization and Good Standing. The Servicer is duly organized, validly existing and in good standing under the laws of the jurisdiction governing its creation, and has full corporate power and authority to execute, deliver and perform its obligations under this Agreement and each Supplement and, in all material respects, to own or lease its properties and conduct its business as such properties are presently owned or leased and as such business is presently conducted. (b) Due Qualification. The Servicer is duly qualified to do business and is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained all necessary licenses and approvals in each jurisdiction in which the performance of its obligations pursuant to this Agreement or under any Supplement requires such licenses and approvals and shall maintain such licenses and approvals except to the extent that such failure would not have a material adverse effect on the interests of the Investor Certificateholders hereunder or under any Supplement. (c) Due Authorization. The execution, delivery and performance of this Agreement and each Supplement, and the other agreements and instruments executed or to be executed by the Servicer as contemplated hereby, have been duly authorized by the Servicer by all necessary corporate action on the part of the Servicer and this Agreement and each Supplement will remain, from the time of its execution, an official record of the Servicer. (d) Binding Obligation. This Agreement and each Supplement constitutes a legal, valid and binding obligation of the Servicer, enforceable in accordance with 43 52 its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (e) No Violation. The execution and delivery of this Agreement and each Supplement by the Servicer, the performance of the transactions contemplated by this Agreement and each Supplement and the fulfillment of the terms hereof and thereof applicable to the Servicer will not conflict with, violate, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any Requirement of Law applicable to the Servicer or any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which it or any of its properties are bound. (f) No Proceedings. There are no proceedings or investigations pending or, to the best knowledge of the Servicer, threatened against the Servicer before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement or any Supplement, seeking any determination or ruling that, in the reasonable judgment of the Servicer, would materially and adversely affect the performance by the Servicer of its obligations under this Agreement or any Supplement, or seeking any determination or ruling that, in the reasonable judgment of the Servicer, would materially and adversely affect the validity or enforceability of this Agreement or any Supplement. (g) Compliance with Requirements of Law. The Servicer shall duly satisfy all obligations on its part to be fulfilled under or in connection with the Receivables and the related Accounts, will maintain in effect all qualifications required under Requirements of Law in order to service the Receivables and the related Accounts properly and will comply in all material respects with all other Requirements of Law in connection with servicing the Receivables and the related Accounts, the failure to comply with which would have a material adverse effect on the interests of the Certificateholders. (h) No Rescission or Cancellation. Subject to Section 3.09, the Servicer shall not permit any rescission or cancellation of a Receivable except as ordered by a court of competent jurisdiction or other Governmental Authority or in the ordinary course of its business and in accordance with the Credit Card Guidelines. (i) Protection of Certificateholders' Rights. The Servicer shall take no action which, nor omit to take any action the omission of which, would substantially impair the rights of Certificateholders in any Receivable or Account, nor shall it, except in the ordinary course of its business and in accordance with the Credit Card Guidelines, reschedule, revise or defer Collections due on the Receivables. (j) Receivables Not To Be Evidenced by Promissory Notes. Except in connection with its enforcement or collection of a Receivable, the Servicer will take no action to cause any Receivable to be evidenced by any instrument (as defined in the UCC) and, if 44 53 any Receivable is so evidenced as a result of the actions of the Servicer, it shall be reassigned or assigned to the Servicer as provided in this Section. (k) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or of any governmental body or official required in connection with the execution and delivery by the Servicer of this Agreement and each Supplement, the performance by the Servicer of the transactions contemplated by this Agreement and each Supplement and the fulfillment by the Servicer of the terms hereof and thereof, have been obtained, except such approvals, authorizations, consents, orders or other actions which if not obtained, effected or given will not, individually or in the aggregate, have any material adverse effect upon the execution and delivery by the Servicer of this Agreement or any Supplement or the performance by the Servicer of the transactions contemplated by this Agreement and each Supplement and the fulfillment by the Servicer of the terms hereof and thereof; and provided, however, that the Servicer makes no representation or warranty regarding state securities or "blue sky" laws in connection with the distribution of the Certificates. For purposes of the representations and warranties set forth in this Section 3.03, each reference to a Supplement shall be deemed to refer only to those Supplements in effect as of the relevant Closing Date or the date of appointment of a Successor Servicer, as applicable. In the event any of the representations, warranties or covenants of the Servicer contained in paragraph (g), (h), (i) or (j) with respect to any Receivable or the related Account is breached, and as a result of such breach the Trust's rights in, to or under any Receivable in the related Account or the proceeds of such Receivable are impaired or such proceeds are not available for any reason to the Trust free and clear of any Lien, then no later than the expiration of 60 days (or such longer period, not in excess of 150 days, as may be agreed to by the Trustee) from the earlier to occur of the discovery of such event by the Servicer, or receipt by the Servicer of notice of such event given by the Trustee, all Receivables in the Account or Accounts to which such event relates shall be reassigned or assigned to the Servicer on the terms and conditions set forth below; provided, however, that such Receivables will not be reassigned or assigned to the Servicer if, on any day prior to the end of such 60-day or longer period, (i) the relevant representation and warranty shall be true and correct, or the relevant covenant shall have been complied with, in all material respects and (ii) the Servicer shall have delivered to the Trustee a certificate of an authorized officer describing the nature of such breach and the manner in which such breach was cured. The Servicer shall effect such assignment by making a deposit into the Collection Account in immediately available funds on the Transfer Date following the Monthly Period in which such assignment obligation arises in an amount equal to the amount of such Receivables, which deposit shall be considered a Collection of Principal Receivables and shall be applied in accordance with Article IV and the terms of each Supplement. Upon each such reassignment or assignment to the Servicer, the Trustee, on behalf of the Trust, shall automatically and without further action be deemed to sell, transfer, assign, set over and otherwise convey to the Servicer, without recourse, representation or warranty, all right, 45 54 title and interest of the Trust in and to such Receivables, all monies due or to become due and all amounts received with respect thereto and all proceeds thereof. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall be reasonably requested by the Servicer to effect the conveyance of any such Receivables pursuant to this Section. The obligation of the Servicer to accept reassignment or assignment of such Receivables, and to make the deposits, if any, required to be made to the Collection Account as provided in the preceding paragraph, shall constitute the sole remedy respecting the event giving rise to such obligation available to Certificateholders (or the Trustee on behalf of Certificateholders) or any Series Enhancer. 3.4. Reports and Records for the Trustee. (a) Daily Records. On each Business Day, the Servicer, upon prior written notice by the Trustee, shall make or cause to be made available at the office of the Servicer on any Business Day during normal business hours for inspection by the Trustee a record setting forth (i) the Collections in respect of Principal Receivables and in respect of Finance Charge Receivables processed by the Servicer on the second preceding Business Day in respect of the Accounts and (ii) the amount of Receivables as of the close of business on the second preceding Business Day. The Servicer shall, at all times, maintain its computer files with respect to the Accounts in such a manner so that the Accounts may be specifically identified. (b) Monthly Servicer's Certificate. Not later than the Determination Date immediately preceding each Distribution Date, the Servicer shall, with respect to each outstanding Series, deliver to the Trustee, the Paying Agent and each Rating Agency a certificate of a Servicing Officer in substantially the form set forth in the related Supplement. 3.5. Annual Certificate of Servicer. The Servicer shall deliver to the Trustee and each Rating Agency, on or before March 31, of each calendar year, beginning with March 31, 2000, an Officer's Certificate (with appropriate insertions) substantially in the form of Exhibit D. 3.6. Annual Servicing Report of Independent Public Accountants; Copies of Reports Available. (a) On or before March 31, of each calendar year, beginning with March 31, 2000, the Servicer shall cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer or the Transferor or any Account Owner) to furnish a report (addressed to the Trustee) to the Trustee, the Servicer and each Rating Agency to the effect that they have applied certain procedures agreed upon with the Servicer and examined certain documents and records relating to the servicing of the Receivables under this Agreement and each Supplement for the prior calendar year and that, on the basis of such agreed-upon procedures, nothing has come to the attention of such accountants that caused them to believe that the servicing (including the allocation of Collections) has not been conducted in compliance with the terms and conditions set forth in Articles III and IV and Section 8.08 of this Agreement and the applicable provisions of each Supplement, except for such exceptions as they 46 55 believe to be immaterial and such other exceptions as shall be set forth in such statement. Such report shall set forth the agreed-upon procedures performed. (b) On or before March 31, of each calendar year, beginning with March 31, 2000, the Servicer shall cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer or the Transferor or any Account Owner) to furnish a report (addressed to the Trustee) to the Trustee, the Servicer and each Rating Agency to the effect that they have applied certain procedures agreed upon with the Servicer to compare the mathematical calculations of certain amounts set forth in the Servicer's certificates delivered pursuant to subsection 3.04(b) during the period covered by such report with the Servicer's computer reports which were the source of such amounts and that on the basis of such agreed-upon procedures and comparison, such accountants are of the opinion that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such statement. (c) A copy of each certificate and report provided pursuant to subsection 3.04(b), 3.05 or 3.06 may be obtained by any Investor Certificateholder or Certificate Owner by a request to the Trustee addressed to the Corporate Trust Office. 3.7. Tax Treatment. Unless otherwise specified in a Supplement with respect to a particular Series, the Transferor has entered into this Agreement, and the Certificates will be issued, with the intention that, for Federal, state and local income and franchise tax purposes (i) the Investor Certificates of each Series which are characterized as indebtedness at the time of their issuance will qualify as indebtedness secured by the Receivables and (ii) the Trust shall not be treated as an association or publicly traded partnership taxable as a corporation. The Transferor, by entering into this Agreement, and each Certificateholder, by the acceptance of any such Certificate (and each Certificate Owner, by its acceptance of an interest in the applicable Certificate), agree to treat such Investor Certificates for Federal, state and local income and franchise tax purposes as indebtedness of the Transferor. Each Holder of such Investor Certificate agrees that it will cause any Certificate Owner acquiring an interest in a Certificate through it to comply with this Agreement as to treatment as indebtedness under applicable tax law, as described in this Section 3.07. The parties hereto agree that they shall not cause or permit the making, as applicable, of any election under Treasury Regulation Section 301.7701-3 whereby the Trust or any portion thereof would be treated as a corporation for federal income tax purposes and, except as required by Section 11.11, shall not file tax returns or obtain any federal employer identification number for the Trust but shall treat the Trust as a security device for such purposes. The provisions of this Agreement shall be construed in furtherance of the foregoing intended tax treatment. 3.8. Notices to NextCard, Inc. In the event that NextCard, Inc. is no longer acting as Servicer, any Successor Servicer shall deliver to NextCard, Inc. each certificate and report required to be provided thereafter pursuant to subsection 3.04(b), 3.05 or 3.06. 3.9. Adjustments. 47 56 (a) If the Servicer adjusts downward the amount of any Receivable because of a rebate, refund, unauthorized charge or billing error to an account holder, or because such Receivable was created in respect of merchandise which was refused or returned by an account holder, or if the Servicer otherwise adjusts downward the amount of any Receivable without receiving Collections therefor or charging off such amount as uncollectible or for other reasons relating to the financial condition of the Obligor thereof, then, in any such case, the amount of Principal Receivables used to calculate the Transferor Amount, the Series Percentages and any other percentage used to allocate within or among Series applicable to any Series will be reduced by the amount of the adjustment. Similarly, the amount of Principal Receivables used to calculate the Transferor Amount, the Series Percentages and any other percentage used to allocate within or among Series applicable to any Series will be reduced by the amount of any Receivable which was discovered as having been created through a fraudulent or counterfeit charge. Any adjustment required pursuant to either of the two preceding sentences shall be made on or prior to the end of the Monthly Period in which such adjustment obligation arises. In the event that, following the exclusion of such Principal Receivables from the calculation of the Transferor Amount, the Transferor Amount would be less than the Required Transferor Amount, not later than 12:00 noon, New York City time, on the third Business Day following the Monthly Period in which such adjustment obligation arises, the Transferor which transferred such Principal Receivables to the Trust shall make a deposit into the Excess Funding Account in immediately available funds in an amount equal to the amount by which the Transferor Amount would be below the Required Transferor Amount (up to the amount of such Principal Receivables). (b) If (i) the Servicer makes a deposit into the Collection Account in respect of a Collection of a Receivable and such Collection was received by the Servicer in the form of a check which is not honored for any reason or (ii) the Servicer makes a mistake with respect to the amount of any Collection and deposits an amount that is less than or more than the actual amount of such Collection, the Servicer shall appropriately adjust the amount subsequently deposited into the Collection Account to reflect such dishonored check or mistake. Any Receivable in respect of which a dishonored check is received shall be deemed not to have been paid. 3.10. Reports to the Commission.. The Servicer shall, on behalf of the Trust, cause to be filed with the Commission any periodic reports required to be filed under the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. The Transferor shall cooperate in any reasonable request of the Servicer in connection with such filings. 3.11. Reports to Rating Agencies. The Servicer agrees to deliver the following to each Rating Agency (unless one or more of such Rating Agencies agrees in writing to waive receipt of such reports, in which case, the reports need not be delivered to the Rating Agency or Rating Agencies which waived the requirement): (a) Within 30 days after the Addition Date with respect to any Automatic Additional Accounts (as defined in subsection 2.09(d) of this Agreement), unless the 48 57 Rating Agency Condition has been satisfied with respect to the designation of such Automatic Additional Accounts, the Servicer shall deliver to each Rating Agency a written report which shall contain (i) the aggregate number of Automatic Additional Accounts designated to the Trust during the three consecutive Monthly Periods ending with the Monthly Period in which such Addition Date occurred and the aggregate amount of Principal Receivables contained in such Automatic Additional Accounts; (ii) the aggregate number of Automatic Additional Accounts designated to the Trust during the 12 consecutive Monthly Periods ending with the Monthly Period in which such Addition Date occurred and the aggregate amount of Principal Receivables contained in such Automatic Additional Accounts; (iii) the number of Accounts and the amount of Principal Receivables in the Trust as of the first day of the three consecutive Monthly Periods described in (i) above occurred; (iv) the number of Accounts and the amount of Principal Receivables in the Trust as of the first day of the 12 consecutive Monthly Periods described in (ii) above; (v) the percentage which the number of Automatic Additional Accounts described in (i) above is of the number of Accounts described in (iii) above; (vi) the percentage which the amount of Principal Receivables described in (i) above is of the amount of Principal Receivables described in (iii) above; (vii) the percentage which the number of Automatic Additional Accounts described in (ii) above is of the number of Accounts described in (iv) above; and (viii) the percentage which the amount of Principal Receivables described in (ii) above is of the amount of Principal Receivables described in (iv) above. (b) Not later than the Determination Date in each month, the Servicer shall deliver to each Rating Agency a written report setting forth, as of the last day of the immediately preceding Monthly Period, the number of Accounts which had addresses located in the territories or possessions of the United States or which were military addresses not located in the United States and the amount of Principal Receivables in such Accounts; provided that the report described in this provision (b) shall not be required if the number of such Accounts is less than 1% of all Accounts as of the end of such Monthly Period and the amount of Principal Receivables in such Accounts is less than 1% of all Principal Receivables as of the end of such Monthly Period. ARTICLE IV Rights of Certificateholders and Allocation and Application of Collections 4.1. Rights of Certificateholders. The Investor Certificates shall represent fractional undivided interests in the Trust which, with respect to each Series, shall consist of the right to receive, to the extent necessary to make the required payments with respect to the Investor Certificates of such Series at the times and in the amounts specified in the related Supplement, the portion of Collections allocable to Investor Certificateholders of such Series pursuant to this Agreement and such Supplement, funds on deposit in the Collection Account and the Excess Funding Account allocable to Certificateholders of such Series pursuant to this Agreement and such Supplement, funds on deposit in any related Series Account and 49 58 funds available pursuant to any related Series Enhancement (collectively, with respect to all Series, the "Certificateholders' Interest"), it being understood that the Investor Certificates of any Series or Class shall not represent any interest in any Series Account or Series Enhancement for the benefit of any other Series or Class. The Transferor Certificates shall represent the ownership interest in the remainder of the Trust Assets not allocated pursuant to this Agreement or any Supplement to the Certificateholders' Interest, including the right to receive Collections with respect to the Receivables and other amounts at the times and in the amounts specified in this Agreement or any Supplement to be paid to the Holders of the Transferor Certificates (the "Transferor's Interest"); provided, however, that the Transferor Certificates shall not represent any interest in the Collection Account, the Excess Funding Account, any Series Account or any Series Enhancement, except as specifically provided in this Agreement or any Supplement; provided further, that the foregoing shall not be construed to limit the Trustee's obligations to make payments to the Holders of the Transferor Certificates, the Transferor and the Servicer as and when required under this Agreement and any Supplement. 4.2. Establishment of Collection Account and Excess Funding Account; Appointment of Securities Intermediary. The Servicer, for the benefit of the Certificateholders, shall cause to be established and maintained in the name of the Trustee, on behalf of the Trust, a Qualified Account with a Securities Intermediary bearing a designation clearly indicating that the funds and other property credited thereto are held for the benefit of the Certificateholders (the "Collection Account"). The Collection Account shall consist of two segregated subaccounts: (1) the "Collection Account Investment Subaccount," to which financial assets credited to the Collection Account shall be credited, and as to which financial assets the Securities Intermediary undertakes to treat the Trustee as entitled to exercise the rights that comprise such financial assets; and (2) the "Collection Account Cash Subaccount," to which money or instruments deposited in the Collection Account shall be credited. The Trustee shall possess all right, title and interest in all funds and other property on deposit from time to time in or credited to the Collection Account including the subaccounts therein and all proceeds thereof. The Collection Account including the subaccounts therein shall be under the sole dominion and control of the Trustee for the benefit of the Certificateholders. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right of setoff against, and no right to otherwise deduct from, any funds held in the Collection Account and the subaccounts therein for any amount owed to it by the Trustee, the Trust, any Certificateholder or any Series Enhancer. If, at any time, the Collection Account or any subaccount therein ceases to be a Qualified Account, the Trustee (or the Servicer on its behalf) shall within ten Business Days (or such longer period, not to exceed 30 calendar days, as to which each Rating Agency may consent) establish a new Collection Account meeting the conditions specified above, transfer any cash or any investments to such new Collection Account and from the date such new Collection Account is established, it shall be the "Collection Account." Funds on deposit in the Collection Account (other than amounts deposited pursuant to Section 2.06, 10.01 or 12.02) shall be invested by the Trustee in Eligible Investments in accordance with written instructions of the Servicer. All such Eligible Investments shall be held by the Trustee or its nominee for the benefit of the 50 59 Certificateholders in the Collection Account Investment Subaccount. The Trustee shall maintain for the benefit of the Certificateholders possession of the instruments or securities, if any, evidencing such Eligible Investments. Delivery of any Eligible Investment to the Trustee, and custody of the same by the Trustee, may be through the Securities Intermediary. Investments of funds representing Collections collected during any Monthly Period shall be invested in Eligible Investments that will mature so that funds will be available at the close of business on the Transfer Date following such Monthly Period. Unless directed by the Servicer in writing, funds deposited in the Collection Account on a Transfer Date with respect to the next following Distribution Date are not required to be invested overnight. For purposes of determining the availability of funds or the balances in the Collection Account for any reason under this Agreement, all investment earnings net of investment expenses and losses on such funds shall be deemed not to be available or on deposit. The Servicer, for the benefit of the Certificateholders, shall cause to be established and maintained in the name of the Trustee, on behalf of the Trust, a Qualified Account with a Securities Intermediary bearing a designation clearly indicating that the funds and other property deposited therein or credited thereto are held for the benefit of the Certificateholders (the "Excess Funding Account"). The Excess Funding Account shall consist of two segregated subaccounts: (i) the "Excess Funding Investment Subaccount," to which financial assets credited to the Excess Funding Account shall be credited, and as to which financial assets the Securities Intermediary undertakes to treat the Trustee as entitled to exercise the rights that comprise such financial assets; and (ii) the "Excess Funding Account Cash Subaccount," to which money or instruments deposited in the Excess Funding Account shall be credited. The Trustee shall possess all right, title and interest in all funds and other property on deposit from time to time in or credited to the Excess Funding Account including the subaccounts therein and all proceeds thereof. The Excess Funding Account including any subaccounts therein shall be under the sole dominion and control of the Trustee for the benefit of the Certificateholders. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right of setoff against, and no right to otherwise deduct from, any funds held in the Excess Funding Account and the subaccounts therein for any amount owed to it by the Trustee, the Trust, any Certificateholder or any Series Enhancer. If, at any time, the Excess Funding Account or any subaccount therein cease to be a Qualified Account, the Trustee (or the Servicer on its behalf) shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, as to which each Rating Agency may consent) establish a new Excess Funding Account meeting the conditions specified above, transfer any cash or any investments to such new Excess Funding Account and from the date such new Excess Funding Account is established, it shall be the "Excess Funding Account." Funds on deposit in the Excess Funding Account shall be invested by the Trustee in Eligible Investments in accordance with written instructions of the Servicer. All such Eligible Investments shall be held by the Trustee or its nominee for the benefit of the Certificateholders in the Excess Funding Investment Subaccount. Delivery of any Eligible Investment to the Trustee, and custody of the same by the Trustee, may be through the Securities Intermediary. The Trustee shall maintain for the benefit of the Certificateholders possession of the instruments or securities, if any, evidencing such Eligible Investments. Funds on deposit in the Excess Funding Account on any date (after giving effect to any withdrawals from the Excess Funding Account on such date) will be invested in Eligible Investments that will mature so that funds will be available at 51 60 the close of business on the Transfer Date following such date. Unless directed by the Servicer in writing, funds deposited in the Excess Funding Account on a Transfer Date with respect to the next following Distribution Date are not required to be invested overnight. On each Transfer Date, the Servicer shall instruct the Trustee to withdraw on the related Distribution Date from the Excess Funding Account and deposit in the Collection Account all interest and other investment earnings (net of losses and investment expenses) on funds and other property on deposit in or credited to the Excess Funding Account, for application as Collections of Finance Charge Receivables with respect to the prior Monthly Period. Interest (including reinvested interest) and other investment income and earnings on funds and other property on deposit in or credited to the Excess Funding Account shall not be considered part of the Excess Funding Amount for purposes of this Agreement. On each Business Day on which funds are on deposit in the Excess Funding Account, the Servicer shall determine the lesser of (x) the amount by which the Transferor Amount exceeds the Required Transferor Amount on such date and (y) the amount by which the aggregate amount of Principal Receivables exceeds the Required Principal Balance and shall instruct the Trustee to withdraw such lesser amount, if any, from the Excess Funding Account (to the extent of funds on deposit therein on such date) and pay such amount to the Holders of the Transferor Certificates. On any Transfer Date on which one or more Series is in an Accumulation Period or Amortization Period, the Servicer shall determine the aggregate amount of Principal Shortfalls, if any, with respect to each such Series that is a Principal Sharing Series (after giving effect to the allocation and payment provisions in the Supplement with respect to each such Series), and the Servicer shall instruct the Trustee to withdraw such amount (up to the Excess Funding Amount) from the Excess Funding Account on the succeeding Distribution Date and allocate such amount among each such Series as Shared Principal Collections as specified herein and in each related Supplement. The Bank of New York is hereby appointed as the initial Securities Intermediary hereunder and The Bank of New York hereby accepts such appointment. The Securities Intermediary shall be, and The Bank of New York as initial Securities Intermediary hereunder hereby represents that it is, as of the date hereof and shall be for so long as it is the Securities Intermediary hereunder a corporation or national bank that it is a securities intermediary as defined in the UCC. The Securities Intermediary shall agree and The Bank of New York, as Securities Intermediary does hereby agree with the parties hereto that each of the Collection Account Investment Subaccount and the Excess Funding Account Investment Subaccount shall be an account to which financial assets may be credited and shall undertake to treat the Trustee as entitled to exercise rights that comprise such financial assets. The Securities Intermediary shall acknowledge and The Bank of New York does hereby acknowledge that the "securities intermediary's jurisdiction" as defined in the UCC as in effect in the State of New York with respect to the Eligible Investments, shall be the State of New York. The Securities Intermediary shall represent and covenant and The Bank of New York does hereby represent and covenant that it is not and will not be (as long as it is the Securities Intermediary hereunder) a party to any agreement that is inconsistent with the provisions of this Agreement. The Securities Intermediary shall covenant and The Bank of New York does hereby covenant that it will not take any action inconsistent with the provisions of this Agreement applicable to it. 52 61 It is the intent of the Trustee, the Servicer and the Transferor that each of the Collection Account Subaccount and the Excess Funding Account Investment Subaccount shall be a securities account of the Trustee and not an account of the Transferor or the Servicer. Nonetheless, (i) the Securities Intermediary shall agree to comply with entitlement orders originated by the Trustee without further consent by the Transferor or the Servicer, (ii) The Bank of New York as initial Security Intermediary agrees that for so long as it is the Securities Intermediary hereunder, it will comply with entitlement orders originated by the Trustee without further consent by the Transferor or the Servicer; and (iii) the Securities Intermediary covenants that it will not agree with any person other than the Trustee to comply with entitlement orders originated by such other person, and The Bank of New York as initial Securities Intermediary covenants that, for so long as it is the Securities Intermediary, it will not agree with any person other than the Trustee to comply with entitlement orders originated by such other person. 4.3. Collections and Allocations. (a) The Servicer will apply or will instruct the Trustee in writing to apply all funds on deposit in the Collection Account as described in this Article IV and in each Supplement. Except as otherwise provided below or as expressly provided in any Supplement with respect to Collections allocated to the related Series, the Servicer shall deposit Collections into the Collection Account no later than the second Business Day following the Date of Processing of such Collections. Subject to the first proviso in Section 4.04, but notwithstanding anything else in this Agreement to the contrary, with respect to any Monthly Period, (i) the Servicer will only be required to deposit Collections into the Collection Account up to the aggregate amount of Collections required to be deposited into any Series Account or, without duplication, distributed on or prior to the related Distribution Date to Investor Certificateholders or to any Series Enhancer pursuant to the terms of any Supplement or Enhancement Agreement and (ii) if at any time prior to such Distribution Date the amount of Collections deposited in the Collection Account exceeds the amount required to be deposited pursuant to clause (i) above, the Servicer will be permitted to withdraw the excess from the Collection Account and pay them to the Holders of the Transferor Certificate. Subject to the immediately preceding sentence, the Servicer may retain its Servicing Fee with respect to a Series and shall not be required to deposit it in the Collection Account. (b) Allocations for the Transferor Certificates. Throughout the existence of the Trust, unless otherwise stated in any Supplement, the Servicer shall allocate to the Holders of the Transferor Certificates an amount equal to the product of (a) the Transferor Percentage and (b) the aggregate amount of such Collections allocated to Principal Receivables and Finance Charge Receivables, respectively, in respect of each Monthly Period. Notwithstanding anything in this Agreement to the contrary, unless otherwise stated in any Supplement, the Servicer need not deposit this amount or any other amounts so allocated to the Transferor Certificates pursuant to any Supplement into the Collection Account and shall pay such amounts as collected to the Holders of the Transferor Certificates. The payments to be made to the Holders of the Transferor Certificates pursuant to this subsection 4.03(b) do not apply to deposits to the Collection Account or other amounts that 53 62 do not represent Collections, including payment of the acquisition price for Receivables pursuant to Section 2.06 or 10.01, proceeds from the sale, disposition or liquidation of Receivables pursuant to Section 12.02 or payment of the acquisition price for the Certificateholders' Interest of a specific Series pursuant to the related Supplement. 4.4. Shared Collections. (a) On each Distribution Date, (i) the Servicer shall allocate Shared Principal Collections to each Principal Sharing Series, pro rata, in proportion to the Principal Shortfalls, if any, with respect to each such Series and (ii) the Servicer shall withdraw from the Collection Account and pay to the Holders of the Transferor Certificates an amount equal to the excess, if any, of (x) the aggregate amount for all outstanding Series of Collections of Principal Receivables which the related Supplements or this Agreement specify are to be treated as "Shared Principal Collections" for such Distribution Date over (y) the aggregate amount for all outstanding Principal Sharing Series which the related Supplements specify are "Principal Shortfalls" for such Distribution Date; provided, however, that if, on any Distribution Date the Transferor Amount is less than or equal to the Required Transferor Amount, the Servicer will not distribute to the Holders of the Transferor Certificates any Shared Principal Collections that otherwise would be distributed to the Holders of the Transferor Certificates but shall deposit such funds in the Excess Funding Account. Notwithstanding the foregoing, a Group of Series may specify in their related Supplement that Shared Principal Collections from such Series shall be allocated as provided above but only among the Series in such Group. (b) On each Distribution Date, (i) the Servicer shall allocate Excess Finance Charge Collections (as described below) to each Excess Allocation Series pro rata, in proportion to the Finance Charge Shortfalls (as described below), if any, with respect to each such Series and (ii) the Servicer shall withdraw from the Collection Account and pay to the Holders of the Transferor Certificates an amount equal to the excess, if any, of (x) the aggregate amount for all outstanding Series of Collections of Finance Charge Receivables which the related Supplements specify are to be treated as "Excess Finance Charge Collections" for such Distribution Date over (y) the aggregate amount for all outstanding Series which the related Supplements specify are "Finance Charge Shortfalls" for such Series and such Distribution Date. A Group of Series may specify in their related Supplement that Excess Finance Charge Collections from such Series shall be allocated as provided above but only among the Series in such Group. 4.5. Additional Withdrawals from the Collection Account. On or before the Determination Date with respect to any Monthly Period, the Servicer shall determine the amounts payable to Heritage Bank of Commerce or any other Account Owner with respect to such Monthly Period under the applicable Receivables Transfer Agreement in respect of amounts on deposit in the Collection Account, if any, that were not transferred to the Transferor under such Receivables Transfer Agreement, and the Servicer shall withdraw such amounts from the Collection Account and pay such amount to Heritage Bank of Commerce or other Account Owner, as applicable. 54 63 4.6. Allocation of Trust Assets to Series or Groups. To the extent so provided in the Supplement for any Series or in an amendment to this Agreement executed pursuant to subsection 13.01(a), Receivables conveyed to the Trust pursuant to Section 2.01 and Receivables or Participation Interests conveyed to the Trust pursuant to Section 2.09 or any Participation Interest Supplement, and all Collections received with respect to such Receivables or Participation Interests, may be allocated in whole or in part to one or more Series or Groups as may be provided in such Supplement or amendment, provided, however, that any such allocation shall be effective only upon satisfaction of the following conditions: (i) on or before the fifth Business Day immediately preceding such allocation, the Servicer shall have given the Trustee and each Rating Agency written notice of such allocation; (ii) the Rating Agency Condition shall have been satisfied with respect to such allocation; and (iii) the Transferor shall have delivered to the Trustee an Officer's Certificate, dated the date of such allocation, to the effect that the Transferor reasonably believes that such allocation will not have an Adverse Effect. Any such Supplement or amendment may provide that (i) such allocation to one or more particular Series or Groups may terminate upon the occurrence of certain events specified therein and (ii) that upon the occurrence of any such event, such assets and any Collections with respect thereto shall be reallocated to other Series or Groups or to all Series, all as shall be provided in such Supplement or amendment. ARTICLE V Distributions and Reports to Certificateholders Distributions shall be made to, and reports shall be provided to, Certificateholders as set forth in the applicable Supplement. ARTICLE VI The Certificates 6.1. The Certificates. The Investor Certificates of any Series or Class may be issued in bearer form ("Bearer Certificates") with attached interest coupons and any other applicable coupon (collectively, the "Coupons") or in fully registered form ("Registered Certificates") and shall be substantially in the form of the exhibits with respect thereto attached to the applicable Supplement. The Transferor Certificate will be issued in registered form, substantially in the form of Exhibit A, and shall upon issuance be executed and delivered by the Transferor to the Trustee for authentication and redelivery as provided in 55 64 Section 6.02. Except as otherwise provided in Section 6.03 or in any Supplement, Bearer Certificates and Registered Certificates shall be issued in minimum denominations of $100,000 and in integral multiples of $1,000 in excess thereof. If specified in any Supplement, the Investor Certificates of any Series or Class shall be issued upon initial issuance as a single certificate evidencing the aggregate original principal amount of such Series or Class as described in Section 6.13. The Transferor Certificate shall be a single certificate and shall initially represent the entire Transferor's Interest. Each Certificate shall be executed by manual or facsimile signature on behalf of the Transferor by its respective President or any Vice President. Certificates bearing the manual or facsimile signature of an individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Transferor shall not be rendered invalid, notwithstanding that such individual ceased to be so authorized prior to the authentication and delivery of such Certificates or does not hold such office at the date of such Certificates. No Certificates shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. Bearer Certificates shall be dated the related Closing Date. All Registered Certificates and Transferor Certificates shall be dated the date of their authentication. 6.2. Authentication of Certificates. The Trustee shall authenticate and deliver the Investor Certificates of each Series and Class that are issued upon original issuance to or upon the order of the Transferor against payment to the Transferor of the purchase price therefor. The Trustee shall authenticate and deliver the Transferor Certificate to the Transferor simultaneously with its delivery of the Investor Certificates of the first Series to be issued hereunder. If specified in the related Supplement for any Series or Class, the Trustee shall authenticate and deliver outside the United States the Global Certificate that is issued upon original issuance thereof. 6.3. New Issuances. (a) The Transferor may from time to time direct the Trustee, on behalf of the Trust, to authenticate one or more new Series of Investor Certificates. The Investor Certificates of all outstanding Series shall be equally and ratably entitled as provided herein to the benefits of this Agreement without preference, priority or distinction, all in accordance with the terms and provisions of this Agreement and the applicable Supplement except, with respect to any Series or Class, as provided in the related Supplement. (b) On or before the Closing Date relating to any new Series, the parties hereto will execute and deliver a Supplement which will specify the Principal Terms of such new Series. The terms of such Supplement may modify or amend any of the terms of this Agreement solely as applied to such new Series. The obligation of the Trustee to authenticate the Investor Certificates of such new Series and to execute and deliver the related Supplement is subject to the satisfaction of the following conditions: 56 65 (i) on or before the fifth day immediately preceding the Closing Date, the Transferor shall have given the Trustee and the Servicer notice of such issuance and the Closing Date; and on or before the tenth day immediately preceding the Closing Date, the Transferor shall have given each Rating Agency notice of such issuance; (ii) the Transferor shall have delivered to the Trustee the related Supplement, in form satisfactory to the Trustee, executed by each party thereto other than the Trustee; (iii) the Transferor shall have delivered to the Trustee any related Enhancement Agreement executed by each of the parties thereto, other than the Trustee; (iv) the Rating Agency Condition shall have been satisfied with respect to such issuance; (v) the Transferor shall have delivered to the Trustee an Officer's Certificate, dated the Closing Date, to the effect that the Transferor reasonably believes that such issuance will not, based on the facts known to such officer at the time of such certification, then or thereafter cause a Pay Out Event or a Reinvestment Event to occur with respect to any Series; and (vi) the Transferor shall have delivered to the Trustee and each Rating Agency a Tax Opinion, dated the Closing Date, with respect to such issuance. Upon satisfaction of the above conditions, the Trustee shall execute the Supplement and authenticate the Investor Certificates of such Series upon execution thereof by the Transferor. (c) The Transferor may surrender the Transferor Certificate to the Trustee in exchange for a newly issued Transferor Certificate and one or more additional certificates (each a "Supplemental Certificate"), the terms of which shall be defined in a supplement to this Agreement (which supplement shall be subject to subsection 13.01(a) only to the extent that it amends any of the terms of this Agreement), to be delivered to or upon the order of the Transferor (or the Holder of a Supplemental Certificate, in the case of the transfer or exchange thereof, as provided below), upon satisfaction of the following conditions: (i) The Transferor shall have given written notice to each Rating Agency of such exchange and the Rating Agency Condition shall have been satisfied with respect to such exchange; (ii) the Transferor Amount (excluding the interest represented by any Supplemental Certificate) shall not be 57 66 less than [*] of the total amount of Principal Receivables as of the date of, and after giving effect to, such exchange; and (iii) if any Series of Investor Certificates are outstanding that were characterized as debt at the time of their issuance, the Transferor shall have delivered to the Trustee and each Rating Agency a Tax Opinion, dated the date of such exchange (or transfer or exchange as provided below), with respect thereto. Any Supplemental Certificate may be transferred or exchanged only upon satisfaction of the conditions set forth in clauses (ii) and (iii) above. (d) The Transferor Certificate (or any interest therein) may be transferred to a Person which is a member of the "affiliated group" of which NextCard, Inc. is the "common parent" (as such terms are defined in Section 1504(a) of the Code); provided that if any Series of Investor Certificates are outstanding that were characterized as debt at the time of their issuance, the Transferor shall have delivered to the Trustee and each Rating Agency a Tax Opinion, dated the date of such transfer, with respect thereto. 6.4. Registration of Transfer and Exchange of Certificates. (a) The Trustee shall cause to be kept at the office or agency to be maintained in accordance with the provisions of Section 11.16 a register (the "Certificate Register") in which, subject to such reasonable regulations as it may prescribe, a transfer agent and registrar (which may be the Trustee) (the "Transfer Agent and Registrar") shall provide for the registration of the Registered Certificates and of transfers and exchanges of the Registered Certificates as herein provided. The Transfer Agent and Registrar shall initially be the Trustee and any co-transfer agent and co-registrar chosen by the Transferor and acceptable to the Trustee, including, if and so long as any Series or Class is listed on the Luxembourg Stock Exchange and such exchange shall so require, a co-transfer agent and co-registrar in Luxembourg. Any reference in this Agreement to the Transfer Agent and Registrar shall include any co-transfer agent and co-registrar unless the context requires otherwise. The Trustee may revoke such appointment and remove any Transfer Agent and Registrar if the Trustee determines in its sole discretion that such Transfer Agent and Registrar failed to perform its obligations under this Agreement in any material respect. Any Transfer Agent and Registrar shall be permitted to resign as Transfer Agent and Registrar upon 30 days' notice to the Transferor, the Trustee and the Servicer; provided, however, that such resignation shall not be effective and such Transfer Agent and Registrar shall continue to perform its duties as Transfer Agent and Registrar until the Trustee has appointed a successor Transfer Agent and Registrar reasonably acceptable to the Transferor. Subject to paragraph (c) below, upon surrender for registration of transfer of any Registered Certificate at any office or agency of the Transfer Agent and Registrar maintained for such purpose, one or more new Registered Certificates (of the same Series and Class) in "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 58 67 authorized denominations of like aggregate fractional undivided interests in the Certificateholders' Interest shall be executed, authenticated and delivered, in the name of the designated transferee or transferees. At the option of a Registered Certificateholder, Registered Certificates (of the same Series and Class) may be exchanged for other Registered Certificates of authorized denominations of like aggregate fractional undivided interests in the Certificateholders' Interest, upon surrender of the Registered Certificates to be exchanged at any such office or agency; Registered Certificates, including Registered Certificates received in exchange for Bearer Certificates, may not be exchanged for Bearer Certificates. At the option of the Holder of a Bearer Certificate, subject to applicable laws and regulations, Bearer Certificates may be exchanged for other Bearer Certificates or Registered Certificates (of the same Series and Class) of authorized denominations of like aggregate fractional undivided interests in the Certificateholders' Interest, upon surrender of the Bearer Certificates to be exchanged at an office or agency of the Transfer Agent and Registrar located outside the United States. Each Bearer Certificate surrendered pursuant to this Section shall have attached thereto all unmatured Coupons; provided that any Bearer Certificate so surrendered after the close of business on the Record Date preceding the relevant payment date after the expected final payment date need not have attached the Coupon relating to such payment date (in each case, as specified in the applicable Supplement). Whenever any Investor Certificates are so surrendered for exchange, the Transferor shall execute, the Trustee shall authenticate and the Transfer Agent and Registrar shall deliver (in the case of Bearer Certificates, outside the United States) the Investor Certificates which the Investor Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form satisfactory to the Trustee or the Transfer Agent and Registrar duly executed by the Investor Certificateholder or the attorney-in-fact thereof duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Investor Certificates, but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any such transfer or exchange. All Investor Certificates (together with any Coupons) surrendered for registration of transfer and exchange or for payment shall be canceled and disposed of in a manner satisfactory to the Trustee. The Trustee shall cancel and destroy any Global Certificate upon its exchange in full for Definitive Euro-Certificates and shall deliver a certificate of destruction to the Transferor. Such certificate shall also state that a certificate or certificates of a Foreign Clearing Agency to the effect referred to in Section 6.13 was received with respect to each portion of the Global Certificate exchanged for Definitive Euro-Certificates. The Transferor shall execute and deliver to the Trustee Bearer Certificates and Registered Certificates in such amounts and at such times as are necessary to enable the Trustee 59 68 to fulfill its responsibilities under this Agreement, each Supplement and the Certificates. (b) The Transfer Agent and Registrar shall maintain at its expense in the Borough of Manhattan, the City of New York, and, if and so long as any Series or Class is listed on the Luxembourg Stock Exchange, Luxembourg, the co-transfer agent and co-registrar appointed pursuant to Section 6.04(a) shall maintain at its expense, subject to reimbursement by the Servicer in accordance with the terms of any fee letter with the Servicer relating to such Series or Class, an office or agency where Investor Certificates may be surrendered for registration of transfer or exchange (except that Bearer Certificates may not be surrendered for exchange at any such office or agency in the United States). (c) (i) Registration of transfer of Investor Certificates containing a legend substantially to the effect set forth on Exhibit E-1 shall be effected only if such transfer (x) is made pursuant to an effective registration statement under the Act, or is exempt from the registration requirements under the Act, and (y) is made to a Person which is not an employee benefit plan, trust or account, including an individual retirement account, that is subject to ERISA or that is described in Section 4975(e)(1) of the Code or an entity whose underlying assets include plan assets by reason of a plan's investment in such entity (a "Benefit Plan"). In the event that registration of a transfer is to be made in reliance upon an exemption from the registration requirements under the Act, the transferor or the transferee shall deliver, at its expense, to the Transferor, the Servicer and the Trustee, an investment letter from the transferee, substantially in the form of the investment and ERISA representation letter attached hereto as Exhibit E-2, and no registration of transfer shall be made until such letter is so delivered. Investor Certificates issued upon registration or transfer of, or Investor Certificates issued in exchange for, Investor Certificates bearing the legend referred to above shall also bear such legend unless the Transferor, the Servicer, the Trustee and the Transfer Agent and Registrar receive an Opinion of Counsel, satisfactory to each of them, to the effect that such legend may be removed. Whenever an Investor Certificate containing the legend referred to above is presented to the Transfer Agent and Registrar for registration of transfer, the Transfer Agent and Registrar shall promptly seek instructions from the Servicer regarding such transfer and shall be entitled to receive instructions signed by a Servicing Officer prior to registering any such transfer. The Transferor hereby agrees to indemnify the Transfer Agent and Registrar and the Trustee and to hold each of them harmless against any loss, liability or expense incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by them in relation to any such instructions furnished pursuant to this clause (i). (ii) Registration of transfer of Investor Certificates containing a 60 69 legend to the effect set forth on Exhibit E-3 shall be effected only if such transfer is made to a Person which is not a Benefit Plan. By accepting and holding any such Investor Certificate, an Investor Certificateholder shall be deemed to have represented and warranted that it is not a Benefit Plan. By acquiring any interest in a Book-Entry Certificate which contains such legend, a Certificate Owner shall be deemed to have represented and warranted that it is not a Benefit Plan. (iii) If so requested by the Transferor, the Trustee will make available to any prospective purchaser of Investor Certificates who so requests, a copy of a letter provided to the Trustee by or on behalf of the Transferor relating to the transferability of any Series or Class to a Benefit Plan. 6.5. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificate (together, in the case of Bearer Certificates, with all unmatured Coupons (if any) appertaining thereto) is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate and (b) there is delivered to the Transfer Agent and Registrar and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee that such Certificate has been acquired by a protected purchaser, the Transferor shall execute, the Trustee shall authenticate and the Transfer Agent and Registrar shall deliver (in the case of Bearer Certificates, outside the United States), in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor and aggregate fractional undivided interest. In connection with the issuance of any new Certificate under this Section, the Trustee or the Transfer Agent and Registrar may require the payment by the Certificateholder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. 6.6. Persons Deemed Owners. The Trustee, the Paying Agent, the Transfer Agent and Registrar and any agent of any of them may (a) prior to due presentation of a Registered Certificate for registration of transfer, treat the Person in whose name any Registered Certificate is registered as the owner of such Registered Certificate for the purpose of receiving distributions pursuant to the terms of the applicable Supplement and for all other purposes whatsoever, and (b) treat the bearer of a Bearer Certificate or Coupon as the owner of such Bearer Certificate or Coupon for the purpose of receiving distributions pursuant to the terms of the applicable Supplement and for all other purposes whatsoever; and, in any such case, neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them shall be affected by any notice to the contrary. Notwithstanding the foregoing, in determining whether the Holders of the requisite Investor Certificates have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Certificates owned by any of the Transferor, any Account Owner, the Servicer, any other Holder of a Transferor Certificate, the Trustee or any Affiliate thereof, shall be disregarded and deemed not to be outstanding, 61 70 except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Certificates which the Trustee actually knows to be so owned shall be so disregarded. Certificates so owned which have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right to so act with respect to such Certificates and that the pledgee is not the Transferor, the Servicer, any other Holder of a Transferor Certificate or any Affiliate thereof. 6.7. Appointment of Paying Agent. The Paying Agent shall make distributions to Investor Certificateholders from the Collection Account or any applicable Series Account pursuant to the provisions of the applicable Supplement and shall report the amounts of such distributions to the Trustee. Any Paying Agent shall have the revocable power to withdraw funds from the Collection Account or any applicable Series Account for the purpose of making the distributions referred to above. The Trustee may revoke such power and remove the Paying Agent if the Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement or any Supplement in any material respect. The Paying Agent shall initially be the Trustee and any co-paying agent chosen by the Transferor and acceptable to the Trustee, including, if and so long as any Series or Class is listed on the Luxembourg Stock Exchange and such exchange so requires, a co-paying agent in Luxembourg or another western European city. Any Paying Agent shall be permitted to resign as Paying Agent upon 30 days' notice to the Trustee. In the event that any Paying Agent shall resign, the Trustee shall appoint a successor to act as Paying Agent. The Trustee shall cause each successor or additional Paying Agent to execute and deliver to the Trustee an instrument in which such successor or additional Paying Agent shall agree with the Trustee that it will hold all sums, if any, held by it for payment to the Investor Certificateholders in trust for the benefit of the Investor Certificateholders entitled thereto until such sums shall be paid to such Investor Certificateholders. The Paying Agent shall return all unclaimed funds to the Trustee and upon removal shall also return all funds in its possession to the Trustee. The provisions of Sections 11.01, 11.02, 11.03 and 11.05 shall apply to the Trustee also in its role as Paying Agent, for so long as the Trustee shall act as Paying Agent. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. 6.8. Access to List of Registered Certificateholders' Names and Addresses. The Trustee will furnish or cause to be furnished by the Transfer Agent and Registrar to the Servicer, the Transferor or the Paying Agent, within five Business Days after receipt by the Trustee of a request therefor, a list in such form as the Servicer, the Transferor or the Paying Agent may reasonably require, of the names and addresses of the Registered Certificateholders. If any Holder or group of Holders of Investor Certificates of any Series or all outstanding Series, as the case may be, evidencing not less than 10% of the aggregate unpaid principal amount of such Series or all outstanding Series, as applicable (the "Applicants"), apply to the Trustee, and such application states that the Applicants desire to communicate with other Investor Certificateholders with respect to their rights under this Agreement or any Supplement or under the Investor Certificates and is accompanied by a copy of the communication which such Applicants propose to transmit, then the Trustee, after having been adequately indemnified 62 71 by such Applicants for its costs and expenses, shall afford or shall cause the Transfer Agent and Registrar to afford such Applicants access during normal business hours to the most recent list of Registered Certificateholders of such Series or all outstanding Series, as applicable, held by the Trustee, within five Business Days after the receipt of such application. Such list shall be as of a date no more than 45 days prior to the date of receipt of such Applicants' request. Every Registered Certificateholder, by receiving and holding a Registered Certificate, agrees with the Trustee that none of the Transferor, the Servicer, the Trustee, the Transfer Agent and Registrar, nor any of their respective agents, shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Registered Certificateholders hereunder, regardless of the sources from which such information was derived. 6.9. Authenticating Agent. (a) The Trustee may appoint one or more authenticating agents with respect to the Certificates which shall be authorized to act on behalf of the Trustee in authenticating the Certificates in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Transferor and the Servicer. (a) Any institution succeeding to the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any power or any further act on the part of the Trustee or such authenticating agent. An authenticating agent may at any time resign by giving notice of resignation to the Trustee and to the Transferor. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent and to the Transferor. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee or the Transferor, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to the Trustee and the Transferor. The Transferor agrees to pay to each authenticating agent from time to time reasonable compensation for its services under this Section. The provisions of Sections 11.01, 11.02 and 11.03 shall be applicable to any authenticating agent. (b) Pursuant to an appointment made under this Section, the Certificates may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the Certificates described in the Amended and Restated Pooling and Servicing Agreement. 63 72 as Authenticating Agent for the Trustee, by Authorized Officer 6.10. Book-Entry Certificates. If so specified in the related Supplement for any Series or Class, the Investor Certificates, upon original issuance, may be issued in the form of one or more typewritten or word-processing system produced Investor Certificates representing the Book-Entry Certificates, to be delivered to the Clearing Agency, by, or on behalf of, the Transferor. The Investor Certificates shall initially be registered on the Certificate Register in the name of the Clearing Agency or its nominee, and no Certificate Owner will receive a definitive certificate representing such Certificate Owner's interest in the Investor Certificates, except as provided in Section 6.12. Unless and until definitive, fully registered Investor Certificates ("Definitive Certificates") have been issued to the applicable Certificate Owners pursuant to Section 6.12 or as otherwise specified in any such Supplement: (a) the provisions of this Section shall be in full force and effect; (b) the Transferor, the Servicer and the Trustee may deal with the Clearing Agency and the Clearing Agency Participants for all purposes (including the making of distributions) as the authorized representatives of the respective Certificate Owners; (c) to the extent that the provisions of this Section conflict with any other provisions of this Agreement, the provisions of this Section shall control; and (d) the rights of the respective Certificate Owners shall be exercised only through the Clearing Agency and the Clearing Agency Participants and shall be limited to those established by law and agreements between such Certificate Owners and the Clearing Agency or the Clearing Agency Participants. Pursuant to the Depository Agreement, unless and until Definitive Certificates are issued pursuant to Section 6.12, the Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the related Investor Certificates to such Clearing Agency Participants. For purposes of any provision of this Agreement requiring or permitting actions with the consent of, or at the direction of, Investor Certificateholders evidencing a specified percentage of the aggregate unpaid principal amount of Investor Certificates, such direction or consent may be given by Certificate Owners (acting through the Clearing Agency and the Clearing Agency Participants) owning Investor Certificates evidencing the requisite percentage of principal amount of Investor Certificates. 6.11. Notices to Clearing Agency. Whenever any notice or other communication is required to be given to Investor Certificateholders of any Series or 64 73 Class with respect to which Book-Entry Certificates have been issued, unless and until Definitive Certificates shall have been issued to the related Certificate Owners, the Trustee shall give all such notices and communications to the applicable Clearing Agency. 6.12. Definitive Certificates. If Book-Entry Certificates have been issued with respect to any Series or Class and (a) the Transferor advises the Trustee in writing that the Clearing Agency is no longer willing or able to discharge properly its responsibilities under the Depository Agreement with respect to such Series or Class and the Trustee or the Transferor are unable to locate a qualified successor, (b) the Transferor, at its option, advises the Trustee that it elects to terminate the book-entry system with respect to such Series or Class through the Clearing Agency or (c) after the occurrence of a Servicer Default, Certificate Owners of such Series or Class evidencing more than 50% of the aggregate unpaid principal amount of such Series or Class advise the Trustee and the Clearing Agency through the Clearing Agency Participants that the continuation of a book-entry system with respect to the Investor Certificates of such Series or Class through the Clearing Agency is no longer in the best interests of the Certificate Owners with respect to such Certificates, then the Trustee shall notify all Certificate Owners of such Certificates, through the Clearing Agency, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Owners requesting the same. Upon surrender to the Trustee of any such Certificates by the Clearing Agency, accompanied by registration instructions from the Clearing Agency for registration, the Transferor shall execute and the Trustee shall authenticate and deliver such Definitive Certificates. Neither the Transferor nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of such Definitive Certificates, all references herein to obligations imposed upon or to be performed by the Clearing Agency shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such Definitive Certificates, and the Trustee shall recognize the Holders of such Definitive Certificates as Investor Certificateholders hereunder. 6.13. Global Certificate; Exchange Date. (a) If specified in the related Supplement for any Series or Class, the Investor Certificates for such Series or Class will initially be issued in the form of a single temporary global Certificate (the "Global Certificate") in bearer form, without interest coupons, in the denomination of the entire aggregate principal amount of such Series or Class and substantially in the form set forth in the exhibit with respect thereto attached to the related Supplement. The Global Certificate will be executed by the Transferor and authenticated by the Trustee upon the same conditions, in substantially the same manner and with the same effect as the Definitive Certificates. The Global Certificate may be exchanged as described below for Bearer or Registered Certificates in definitive form (the "Definitive Euro-Certificates"). (b) The Manager shall, upon its determination of the date of completion of the distribution of the Investor Certificates of such Series or Class, so advise the Trustee, the Transferor, the Depositaries, and each Foreign Clearing Agency forthwith. Without unnecessary delay, but in any event not prior to the Exchange Date, the Transferor will execute 65 74 and deliver to the Trustee at its London office or its designated agent outside the United States definitive Bearer Certificates in an aggregate principal amount equal to the entire aggregate principal amount of such Series or Class. All Bearer Certificates so issued and delivered will have Coupons attached. The Global Certificate may be exchanged for an equal aggregate principal amount of Definitive Euro-Certificates only on or after the Exchange Date. An institutional investor that is a U.S. Person may exchange the portion of the Global Certificate beneficially owned by it only for an equal aggregate principal amount of Registered Certificates bearing the applicable legend set forth in the form of Registered Certificates attached to the related Supplement and having a minimum denomination of $500,000, which may be in temporary form if the Transferor so elects. The Transferor may waive the $500,000 minimum denomination requirement if it so elects. Upon any demand for exchange for Definitive Euro-Certificates in accordance with this paragraph, the Transferor shall cause the Trustee to authenticate and deliver the Definitive Euro-Certificates to the Holder (x) outside the United States, in the case of Bearer Certificates, and (y) according to the instructions of the Holder, in the case of Registered Certificates, but in either case only upon presentation to the Trustee of a written statement substantially in the form of Exhibit F-1 with respect to the Global Certificate or portion thereof being exchanged, signed by a Foreign Clearing Agency and dated on the Exchange Date or a subsequent date, to the effect that it has received in writing or by tested telex a certification substantially in the form of (i) in the case of beneficial ownership of the Global Certificate or a portion thereof being exchanged by a United States institutional investor pursuant to the second preceding sentence, the certificate in the form of Exhibit F-2 signed by the Manager which sold the relevant Certificates or (ii) in all other cases, the certificate in the form of Exhibit F-3, the certificate referred to in this clause (ii) being dated on the earlier of the first actual payment of interest in respect of such Certificates and the date of the delivery of such Certificate in definitive form. Upon receipt of such certification, the Trustee shall cause the Global Certificate to be endorsed in accordance with paragraph (d) below. Any exchange as provided in this Section shall be made free of charge to the Holders and the beneficial owners of the Global Certificate and to the beneficial owners of the Definitive Euro-Certificates issued in exchange, except that a person receiving Definitive Euro-Certificates must bear the cost of insurance, postage, transportation and the like in the event that such person does not receive such Definitive Euro-Certificates in person at the offices of a Foreign Clearing Agency. (c) The delivery to the Trustee by a Foreign Clearing Agency of any written statement referred to above may be relied upon by the Transferor and the Trustee as conclusive evidence that a corresponding certification or certifications has or have been delivered to such Foreign Clearing Agency pursuant to the terms of this Agreement. (d) Upon any such exchange of all or a portion of the Global Certificate for a Definitive Euro-Certificate or Certificates, such Global Certificate shall be endorsed by or on behalf of the Trustee to reflect the reduction of its principal amount by an amount equal to the aggregate principal amount of such Definitive Euro-Certificate or Certificates. Until so exchanged in full, such Global Certificate shall in all respects be entitled to the same benefits under this Agreement as Definitive Euro-Certificates authenticated and delivered hereunder except that the beneficial owners of such Global Certificate shall not be entitled to receive payments of interest on the Certificates until they have exchanged their 66 75 beneficial interests in such Global Certificate for Definitive Euro-Certificates. 6.14. Meetings of Certificateholders. (a) If at the time any Bearer Certificates are issued and outstanding with respect to any Series or Class to which any meeting described below relates, the Transferor, the Servicer or the Trustee may at any time call a meeting of Investor Certificateholders of any Series or Class or of all Series, to be held at such time and at such place as the Transferor, the Servicer or the Trustee, as the case may be, shall determine, for the purpose of approving a modification of or amendment to, or obtaining a waiver of any covenant or condition set forth in, this Agreement, any Supplement or the Investor Certificates or of taking any other action permitted to be taken by Investor Certificateholders hereunder or under any Supplement. Notice of any meeting of Investor Certificateholders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given in accordance with Section 13.05, the first mailing and publication to be not less than 20 nor more than 180 days prior to the date fixed for the meeting. To be entitled to vote at any meeting of Investor Certificateholders a person shall be (i) a Holder of one or more Investor Certificates of the applicable Series or Class or (ii) a person appointed by an instrument in writing as proxy by the Holder of one or more such Investor Certificates. The only persons who shall be entitled to be present or to speak at any meeting of Investor Certificateholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Transferor, the Servicer and the Trustee and their respective counsel. (b) At a meeting of Investor Certificateholders, persons entitled to vote Investor Certificates evidencing a majority of the aggregate unpaid principal amount of the applicable Series or Class or all outstanding Series, as the case may be, shall constitute a quorum. No business shall be transacted in the absence of a quorum, unless a quorum is present when the meeting is called to order. In the absence of a quorum at any such meeting, the meeting may be adjourned for a period of not less than 10 days; in the absence of a quorum at any such meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days; at the reconvening of any meeting further adjourned for lack of a quorum, the persons entitled to vote Investor Certificates evidencing at least 25% of the aggregate unpaid principal amount of the applicable Series or Class or all outstanding Series, as the case may be, shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. Notice of the reconvening of any adjourned meeting shall be given as provided above except that such notice must be given not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the aggregate principal amount of the outstanding applicable Investor Certificates which shall constitute a quorum. (c) Any Investor Certificateholder who has executed an instrument in writing appointing a person as proxy shall be deemed to be present for the purposes of determining a quorum and be deemed to have voted; provided that such Investor Certificateholder shall be considered as present or voting only with respect to the matters covered by such instrument in writing. Subject to the provisions of Section 13.01, any resolution passed 67 76 or decision taken at any meeting of Investor Certificateholders duly held in accordance with this Section shall be binding on all Investor Certificateholders whether or not present or represented at the meeting. (d) The holding of Bearer Certificates shall be proved by the production of such Bearer Certificates or by a certificate, satisfactory to the Servicer, executed by any bank, trust company or recognized securities dealer, wherever situated, satisfactory to the Servicer. Each such certificate shall be dated and shall state that on the date thereof a Bearer Certificate bearing a specified serial number was deposited with or exhibited to such bank, trust company or recognized securities dealer by the Person named in such certificate. Any such certificate may be issued in respect of one or more Bearer Certificates specified therein. The holding by the Person named in any such certificate of any Bearer Certificate specified therein shall be presumed to continue for a period of one year from the date of such certificate unless at the time of any determination of such holding (i) another certificate bearing a later date issued in respect of the same Bearer Certificate shall be produced, (ii) the Bearer Certificate specified in such certificate shall be produced by some other Person or (iii) the Bearer Certificate specified in such certificate shall have ceased to be outstanding. The appointment of any proxy shall be proved by having the signature of the Person executing the proxy guaranteed by any bank, trust company or recognized securities dealer satisfactory to the Trustee. (e) The Trustee shall appoint a temporary chairman of the meeting. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of Investor Certificates evidencing a majority of the aggregate unpaid principal amount of Investor Certificates of the applicable Series or Class or all outstanding Series, as the case may be, represented at the meeting. No vote shall be cast or counted at any meeting in respect of any Investor Certificate challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote except as an Investor Certificateholder or proxy. Any meeting of Investor Certificateholders duly called at which a quorum is present may be adjourned from time to time, and the meeting may be held as so adjourned without further notice. (f) The vote upon any resolution submitted to any meeting of Investor Certificateholders shall be by written ballot on which shall be subscribed the signatures of Investor Certificateholders or proxies and on which shall be inscribed the serial number or numbers of the Investor Certificates held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Investor Certificateholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was published as provided above. The record shall be signed and verified by the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Servicer and the other to the Trustee to be preserved by the Trustee, the latter to have 68 77 attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 6.15. Uncertificated Classes. Notwithstanding anything to the contrary contained in this Article VI or in Article XII, unless otherwise specified in any Supplement, any provisions contained in this Article VI and in Article XII relating to the registration, form, execution, authentication, delivery, presentation, cancellation and surrender of Certificates shall not be applicable to any uncertificated Certificates. ARTICLE VII Other Matters Relating to the Transferor 7.1. Liability of the Transferor. Each Transferor (including any Additional Transferors) shall be severally and not jointly liable for the obligations, covenants, representations and warranties of such Transferor arising under or related to this Agreement or any Supplement. Each Transferor shall be liable only to the extent of the obligations specifically undertaken by it in its capacity as a Transferor. 7.2. Merger or Consolidation of, or Assumption of the Obligations of, the Transferor. (a) No Transferor shall dissolve, liquidate, consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person unless: (i) (x) the corporation formed by such consolidation or into which such Transferor is merged or the Person which acquires by conveyance, transfer or sale the properties and assets of such Transferor substantially as an entirety shall be, if such Transferor is not the surviving entity, organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall be a savings association, a national banking association, a bank or other entity which is not subject to Title 11 of the United States Code or is a special purpose corporation whose powers and activities are limited to substantially the same degree as provided in the Certificate of Incorporation of NextCard Funding Corp. and, if such Transferor is not the surviving entity, shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the performance of every covenant and obligation of such Transferor hereunder; and (y) such Transferor or the surviving entity as the case may be has delivered to the Trustee (with a copy to each Rating Agency) an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section, that such supplemental agreement is a valid and binding obligation of such surviving entity enforceable against such surviving entity in 69 78 accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally from time to time in effect or general principles of equity (whether considered in a suit at law or in equity), and that all conditions precedent herein provided for relating to such transaction have been complied with; (ii) the Rating Agency Condition shall have been satisfied with respect to such consolidation, merger, conveyance or transfer; and (iii) the relevant Transferor shall have delivered to the Trustee and each Rating Agency a Tax Opinion, dated the date of such consolidation, merger, conveyance or transfer, with respect thereto. (b) Except as permitted by subsection 2.07(c), the obligations, rights or any part thereof of each Transferor hereunder shall not be assignable nor shall any Person succeed to such obligations or rights of any Transferor hereunder except (i) for conveyances, mergers, consolidations, assumptions, sales or transfers in accordance with the provisions of the foregoing paragraph and (ii) for conveyances, mergers, consolidations, assumptions, sales or transfers to other entities (1) which such Transferor and the Servicer determine will not result in an Adverse Effect, (2) which meet the requirements of clauses (ii) and (iii) of the preceding paragraph and (3) for which such purchaser, transferee, pledgee or entity shall expressly assume, in an agreement supplemental hereto, executed and delivered to the Trustee in writing in form satisfactory to the Trustee, the performance of every covenant and obligation of such Transferor thereby conveyed. 7.3. Limitations on Liability of the Transferor. Subject to Section 7.01, neither the Transferor nor any of its directors, officers, employees, incorporators or agents acting in such capacities shall be under any liability to the Trust, the Trustee, the Certificateholders, the Certificate Owners, any Series Enhancer, any other Transferor or any other Person for any action taken or for refraining from the taking of any action in good faith in such capacities pursuant to this Agreement, it being expressly understood that such liability is expressly waived and released as a condition of, and consideration for, the execution of this Agreement and any Supplement and the issuance of the Certificates; provided, however, that this provision shall not protect any Transferor or any such Person against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. Each Transferor and any director, officer, employee or agent of such Transferor may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person (other than such Transferor) respecting any matters arising hereunder. 70 79 ARTICLE VIII Other Matters Relating to the Servicer 8.1. Liability of the Servicer. The Servicer shall be liable under this Article only to the extent of the obligations specifically undertaken by the Servicer in its capacity as Servicer. 8.2. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer. The Servicer shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (a) (i) the corporation formed by such consolidation or into which the Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall be, if the Servicer is not the surviving entity, a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia and, if the Servicer is not the surviving entity, such corporation shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the performance of every covenant and obligation of the Servicer hereunder; (ii) the Servicer has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section, that such supplemental agreement is a valid and binding obligation of such surviving entity enforceable against such surviving entity in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally from time to time in effect and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity), and that all conditions precedent herein provided for relating to such transaction have been complied with; (b) the Rating Agency Condition shall have been satisfied with respect to such assignment and succession; and (c) the corporation formed by such consolidation or into which the Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall be an Eligible Servicer. 8.3. Limitation on Liability of the Servicer and Others. Except as provided in Section 8.04, neither the Servicer nor any of the directors, officers, employees or agents of the Servicer in its capacity as Servicer shall be under any liability to the Trust, the Trustee, the Certificateholders, any Series Enhancer or any other Person for any action taken or for refraining from the taking of any action in good faith in its capacity as Servicer pursuant to this Agreement; provided, however, that this provision shall not protect the Servicer 71 80 or any such Person against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person (other than the Servicer) respecting any matters arising hereunder. The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties as Servicer in accordance with this Agreement and which in its reasonable judgment may involve it in any expense or liability. The Servicer may, in its sole discretion, undertake any such legal action which it may deem necessary or desirable for the benefit of the Certificateholders with respect to this Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. 8.4. Servicer Indemnification of the Trust and the Trustee. The Servicer shall indemnify and hold harmless the Trust and the Trustee from and against any loss, liability, expense, damage or injury suffered or sustained by reason of (a) any acts or omissions of the Servicer with respect to the Trust pursuant to this Agreement or (b) the administration by the Trustee of the Trust, including any judgment, award, settlement, reasonable attorneys' fees and expenses and other costs or expenses incurred in connection with the defense of any action, proceeding or claim; provided, however, that the Servicer shall not indemnify the Trustee if such acts, omissions or alleged acts or omissions constitute or are caused by fraud, negligence, or willful misconduct by the Trustee; provided further, that the Servicer shall not indemnify the Trust, the Investor Certificateholders or the Certificate Owners for any liabilities, costs or expenses of the Trust with respect to any action taken by the Trustee at the request of the Investor Certificateholders; provided further, that the Servicer shall not indemnify the Trust, the Investor Certificateholders or the Certificate Owners as to any losses, claims or damages incurred by any of them in their capacities as investors, including without limitation losses incurred as a result of Defaulted Receivables; and provided further, that the Servicer shall not indemnify the Trust, the Investor Certificateholders or the Certificate Owners for any liabilities, costs or expenses of the Trust, the Investor Certificateholders or the Certificate Owners arising under any tax law, including without limitation, any Federal, state, local or foreign income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith) required to be paid by the Trust, the Investor Certificateholders or the Certificate Owners in connection herewith to any taxing authority. Indemnification pursuant to this Section shall not be payable from the Trust Assets. The provisions of this indemnity shall run directly to and be enforceable by the Trust or the Trustee subject to the limitations hereof and shall survive the termination of this Agreement or the Trust or the earlier removal or resignation of the Trustee. 8.5. Resignation of the Servicer. The Servicer shall not resign from the obligations and duties hereby imposed on it except (a) upon determination that (i) the performance of its duties hereunder is no longer permissible under applicable law and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law or (b) upon the assumption, by an agreement supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, of the obligations and duties of the Servicer hereunder by any of its Affiliates that is a direct or 72 81 indirect wholly owned subsidiary of NextCard, Inc. or by any other entity the appointment of which shall have satisfied the Rating Agency Condition and, in either case, qualifies as an Eligible Servicer. Any determination permitting the resignation of the Servicer shall be evidenced as to clause (a) above by an Opinion of Counsel to such effect delivered to the Trustee. No resignation shall become effective until the Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 10.02. If within 120 days of the date of the determination that the Servicer may no longer act as Servicer under clause (a) above the Trustee is unable to appoint a Successor Servicer, the Trustee shall serve as Successor Servicer; provided, however, that the Trustee shall have continued authority to appoint another Eligible Servicer. Notwithstanding the foregoing, the Trustee shall, if it is legally unable so to act, petition a court of competent jurisdiction to appoint any established institution qualifying as an Eligible Servicer as the Successor Servicer hereunder. The Trustee shall give prompt notice to each Rating Agency upon the appointment of a Successor Servicer. Notwithstanding anything in this Agreement to the contrary, NextCard, Inc. may assign part or all of its obligations and duties as Servicer under this Agreement to an Affiliate of NextCard, Inc. so long as NextCard, Inc. shall have fully guaranteed the performance of such obligations and duties under this Agreement. 8.6. Access to Certain Documentation and Information Regarding the Receivables. The Servicer shall provide to the Trustee access to the documentation regarding the Accounts and the Receivables in such cases where the Trustee is required in connection with the enforcement of the rights of Certificateholders or by applicable statutes or regulations to review such documentation, such access being afforded without charge but only (a) upon reasonable request, (b) during normal business hours, (c) subject to the Servicer's normal security and confidentiality procedures and (d) at reasonably accessible offices in the continental United States designated by the Servicer. Nothing in this Section shall derogate from the obligation of the Transferor, the Trustee and the Servicer to observe any applicable law prohibiting disclosure of information regarding the Obligors and the failure of the Servicer to provide access as provided in this Section as a result of such obligation shall not constitute a breach of this Section. 8.7. Delegation of Duties. In the ordinary course of business, the Servicer may at any time delegate any duties hereunder to any Person who agrees to conduct such duties in accordance with the Credit Card Guidelines and this Agreement; provided, however, in the case of significant delegation to a Person other than to an Account Owner or any Affiliate of an Account Owner, (i) at least 30 days prior written notice shall be given to the Trustee and each Rating Agency of such delegation and (ii) at or prior to the end of such 30-day period the Servicer shall have determined that the Rating Agency Condition has been met. Any such delegations shall not relieve the Servicer of its liability and responsibility with respect to such duties, and shall not constitute a resignation within the meaning of Section 8.05. The fees and expenses of any such Person will not be the responsibility of the Trustee or the Certificateholders. 8.8. Examination of Records. The Servicer shall clearly and unambiguously indicate in its computer files or other records that the Receivables arising in 73 82 the Accounts have been conveyed to the Trustee, on behalf of the Trust, pursuant to this Agreement for the benefit of the Certificateholders. The Servicer shall, prior to the sale or transfer to a third party of any receivable held in its custody, examine its computer and other records to determine that such receivable is not a Receivable. ARTICLE IX Pay Out Events 9.1. Trust Pay Out Events. If any one of the following events shall occur with respect to the Trust ("Trust Pay Out Events"): (i) any Transferor or any of the Account Owners shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to such Transferor or Account Owner or of or relating to all or substantially all of its property, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against such Transferor or Account Owner; or any Transferor or Account Owner shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make any assignment for the benefit of its creditors or voluntarily suspend payment of its obligations (any such event, an "Insolvency Event"); (ii) the Trust shall become subject to regulation by the Commission as an "investment company" within the meaning of the Investment Company Act; or (iii) a Transfer Restriction Event shall occur; then, a Trust Pay Out Event shall occur with respect to each Series without any notice or other action on the part of the Trustee or the Investor Certificateholders, immediately upon the occurrence of such event. 9.2. Rights Upon the Occurrence of an Insolvency Event. If the Transferor causes an Insolvency Event to occur with respect to the Transferor or an Account Owner or if an Insolvency Event otherwise occurs with respect to the Transferor or an Account Owner, the Transferor shall on the day any such Insolvency Event occurs immediately cease to transfer Principal Receivables to the Trust and shall promptly give notice to the Trustee thereof. Notwithstanding any cessation of the transfer to the Trust of additional Principal Receivables, Principal Receivables transferred to the Trust prior to the occurrence of such 74 83 Insolvency Event and Collections in respect of such Principal Receivables and Finance Charge Receivables, whenever created, accrued in respect of such Principal Receivables shall continue to be a part of the Trust Assets. ARTICLE X Servicer Defaults 10.1. Servicer Defaults. If any one of the following events (a "Servicer Default") shall occur and be continuing: (a) any failure by the Servicer to make any payment, transfer or deposit or to give instructions or notice to the Trustee pursuant to the terms of this Agreement or any Supplement on or before the date occurring five Business Days after the date such payment, transfer or deposit or such instruction or notice is required to be made or given, as the case may be, under the terms of this Agreement or any Supplement; (b) failure on the part of the Servicer duly to observe or perform in any material respect any other covenants or agreements of the Servicer set forth in this Agreement or any Supplement which has a material adverse effect on the interests hereunder of the Investor Certificateholders of any Series or Class and which continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by Holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount (or, with respect to any such failure that does not relate to all Series, 50% of the aggregate Invested Amount of all Series to which such failure relates); or the Servicer shall delegate its duties under this Agreement, except as permitted by Sections 8.02 or 8.07, a Responsible Officer of the Trustee has actual knowledge of such delegation and such delegation continues unremedied for 15 days after the date on which written notice thereof, requiring the same to be remedied, shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by Holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount; (c) any representation, warranty or certification made by the Servicer in this Agreement or any Supplement or in any certificate delivered pursuant to this Agreement or any Supplement shall prove to have been incorrect when made, which has a material adverse effect on the rights of the Investor Certificateholders of any Series or Class and which continues to be incorrect in any material respect for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by the Holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount (or, with respect to any such representation, warranty or certification that does not relate to all Series, 50% of the Aggregate Invested Amount of all Series to which such representation, warranty or certification relates); or (d) the Servicer shall consent to the appointment of a conservator 75 84 or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to the Servicer or of or relating to all or substantially all of its property, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Servicer, and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or the Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make any assignment for the benefit of its creditors or voluntarily suspend payment of its obligations; then, in the event of any Servicer Default, so long as the Servicer Default shall not have been remedied, either the Trustee or the Holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount, by notice then given to the Servicer (and to the Trustee if given by the Investor Certificateholders) (a "Termination Notice"), may terminate all but not less than all the rights and obligations of the Servicer as Servicer under this Agreement; provided, however, if within 60 days of receipt of a Termination Notice the Trustee does not receive any bids from Eligible Servicers in accordance with subsection 10.02(c) to act as a Successor Servicer and receives an Officer's Certificate of the Servicer to the effect that the Servicer cannot in good faith cure the Servicer Default which gave rise to the Termination Notice, the Trustee shall offer the Transferor the right at its option to purchase the Certificateholders' Interest on the Distribution Date next succeeding 60 days after the receipt by the Servicer of a Termination Notice. The purchase price for the Certificateholders' Interest shall be equal to the sum of the amounts specified therefor with respect to each outstanding Series in the related Supplement. The Transferor shall notify the Trustee in writing prior to the Record Date for the Distribution Date of the purchase if it is exercising such option. If the Transferor exercises such option, the Transferor shall deposit the purchase price into the Collection Account not later than 12:00 noon, New York City time, on such Distribution Date in immediately available funds. The purchase price shall be allocated and distributed to Investor Certificateholders in accordance with Article IV and the terms of each Supplement. After receipt by the Servicer of such Termination Notice, and on the date that a Successor Servicer shall have been appointed by the Trustee pursuant to Section 10.02, all authority and power of the Servicer under this Agreement shall pass to and be vested in a Successor Servicer; and, without limitation, the Trustee is hereby authorized and empowered (upon the failure of the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of the Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Servicer agrees to cooperate with the Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder including, without limitation, the transfer to such Successor Servicer of all authority of the 76 85 Servicer to service the Receivables provided for under this Agreement, including, without limitation, all authority over all Collections which shall on the date of transfer be held by the Servicer for deposit, or which have been deposited by the Servicer, in the Collection Account, or which shall thereafter be received with respect to the Receivables, and in assisting the Successor Servicer and in enforcing all rights to Insurance Proceeds. The Servicer shall promptly transfer its electronic records relating to the Receivables to the Successor Servicer in such electronic form as the Successor Servicer may reasonably request and shall promptly transfer to the Successor Servicer all other records, correspondence and documents necessary for the continued servicing of the Receivables in the manner and at such times as the Successor Servicer shall reasonably request. To the extent that compliance with this Section 10.01 shall require the Servicer to disclose to the Successor Servicer information of any kind which the Servicer reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as the Servicer shall deem necessary to protect its interests. Notwithstanding the foregoing, any delay in or failure of performance under subsection 10.01(a) for a period of 5 Business Days or under subsections 10.01(b) or (c) for a period of 60 days (in addition to any period provided in subsections 10.01(a), (b) or (c)) shall not constitute a Servicer Default until the expiration of such additional 5 Business Days or 60 days, respectively, if such delay or failure could not be prevented by the exercise of reasonable diligence by the Servicer and such delay or failure was caused by an act of God or the public enemy, acts of declared or undeclared war, terrorism, public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes, earthquakes, floods or similar causes. The preceding sentence shall not relieve the Servicer from using its best efforts to perform its respective obligations in a timely manner in accordance with the terms of this Agreement and any Supplement and the Servicer shall provide the Trustee, each Rating Agency, the Holders of the Transferor Certificates and the Investor Certificateholders with an Officer's Certificate giving prompt notice of such failure or delay by it, together with a description of its efforts to so perform its obligations. 10.2. Trustee To Act, Appointment of Successor. (a) On and after the receipt by the Servicer of a Termination Notice pursuant to Section 10.01, the Servicer shall continue to perform all servicing functions under this Agreement until the date specified in the Termination Notice or otherwise specified by the Trustee or until a date mutually agreed upon by the Servicer and Trustee. The Trustee shall as promptly as possible after the giving of a Termination Notice appoint an Eligible Servicer as a successor servicer (the "Successor Servicer"), and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Trustee. In the event that a Successor Servicer has not been appointed or has not accepted its appointment at the time when the Servicer ceases to act as Servicer, the Trustee without further action shall automatically be appointed the Successor Servicer; provided, however, that the Trustee shall have continued authority to appoint another Eligible Servicer. The Trustee may delegate any of its servicing obligations to an Affiliate of the Trustee or agent in accordance with Sections 3.01(b) and 8.07. Notwithstanding the foregoing, the Trustee shall, if it is unable so to act, petition a court of 77 86 'competent jurisdiction to appoint any established institution qualifying as an Eligible Servicer as the Successor Servicer hereunder. The Trustee shall give prompt notice to each Rating Agency upon the appointment of a Successor Servicer. (b) Upon its appointment, the Successor Servicer shall be the successor to the Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the Successor Servicer. (c) In connection with any Termination Notice, the Trustee will review any bids which it obtains from Eligible Servicers and shall be permitted to appoint any Eligible Servicer submitting such a bid as a Successor Servicer for servicing compensation not in excess of the aggregate Servicing Fees for all Series; provided, however, that the Holders of the Transferor Certificates shall be responsible for payment of the Transferor's portion of such aggregate Servicing Fees and that no such monthly compensation paid out of Collections shall be in excess of such aggregate Servicing Fees. Each Holder of a Transferor Certificate agrees that, if NextCard, Inc. (or any Successor Servicer) is terminated as Servicer hereunder, the portion of the Collections in respect of Finance Charge Receivables that such Holders are entitled to receive pursuant to this Agreement or any Supplement shall be reduced by an amount sufficient to pay such Holders' share (determined by reference to the Supplements with respect to any outstanding Series) of the compensation of the Successor Servicer. (d) All authority and power granted to the Successor Servicer or the Servicer under this Agreement shall automatically cease and terminate upon termination of the Trust pursuant to Section 12.01 and shall pass to and be vested in the Transferor and, without limitation, the Transferor is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer or the Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Successor Servicer and the Servicer agree to cooperate with the Transferor in effecting the termination of the responsibilities and rights of the Successor Servicer or the Servicer to conduct servicing on the Receivables. The Successor Servicer or the Servicer shall transfer its electronic records relating to the Receivables to the Transferor in such electronic form as the Transferor may reasonably request and shall transfer all other records, correspondence and documents to the Transferor in the manner and at such times as the Transferor shall reasonably request. To the extent that compliance with this Section 10.02 shall require the Successor Servicer or the Servicer to disclose to the Transferor information of any kind which the Successor Servicer or the Servicer deems to be confidential, the Transferor shall be required to enter into such customary licensing and confidentiality agreements as the Successor Servicer or the Servicer shall deem necessary to protect its interests. 10.3. Notification to Certificateholders. Within two Business Days after the Servicer becomes aware of any Servicer Default, the Servicer shall give notice thereof to the Trustee and each Rating Agency and the Trustee shall give notice to the Investor Certificateholders. Upon any termination or appointment of a Successor Servicer 78 87 pursuant to this Article, the Trustee shall give prompt notice thereof to the Investor Certificateholders. ARTICLE XI The Trustee 11.1. Duties of Trustee. (a) The Trustee, prior to the occurrence of a Servicer Default and after the curing of all Servicer Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. If a Responsible Officer has received written notice that a Servicer Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee that are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they substantially conform to the requirements of this Agreement. (c) Subject to subsection 11.01(a), no provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; provided, however, that: (i) the Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (ii) the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Holders of Investor Certificates evidencing more than 50% of the Invested Amount of any Series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee in relation to such Series, under this Agreement; and (iii) the Trustee shall not be charged with knowledge of any failure by the Servicer referred to in clauses (a) and (b) of Section 10.01 unless a Responsible Officer of the Trustee obtains actual knowledge of such failure or the Trustee receives written notice of such failure from the Servicer or any Holders of Investor Certificates evidencing not less than 10% of the Invested Amount of any Series adversely affected thereby. 79 88 (d) The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder including, without limitation, its duties as Successor Servicer, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under this Agreement except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Agreement. (e) Except for actions expressly authorized by this Agreement, the Trustee shall take no action reasonably likely to (i) impair the interests of the Trust in any Receivable now existing or hereafter created or (ii) impair the value of any Receivable now existing or hereafter created. (f) The Trustee shall have no power to vary the corpus of the Trust, except as expressly provided in this Agreement. (g) In the event that the Paying Agent or the Transfer Agent and Registrar shall fail to perform any obligation, duty or agreement in the manner or on the day required to be performed by the Paying Agent or the Transfer Agent and Registrar, as the case may be, under this Agreement, the Trustee shall be obligated as soon as possible upon actual knowledge of a Responsible Officer thereof and receipt of appropriate records, if any, to perform such obligation, duty or agreement in the manner so required. (h) If the Transferor has agreed to transfer any of its consumer revolving credit card receivables (other than the Receivables) to another Person, upon the written request of the Transferor, the Trustee will enter into such intercreditor agreements with the transferee of such receivables as are customary and necessary to separately identify the rights, if any, of the Trust and such other Person in the Transferor's consumer revolving credit card receivables; provided, that the Trustee shall not be required to enter into any intercreditor agreement which could adversely affect the interests of the Certificateholders and, upon the request of the Trustee, the Transferor will deliver an Opinion of Counsel on any matters relating to such intercreditor agreement, reasonably requested by the Trustee. 11.2. Certain Matters Affecting the Trustee. Except as otherwise provided in Section 11.01: (a) The Trustee may conclusively rely on and shall be protected in acting on, or in refraining from acting in accord with, any Assignment, the initial report, the annual Servicer's certificate, the monthly payment instructions and notification to the Trustee, the monthly Certificateholder's statement, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to this Agreement by the proper party or parties; 80 89 (b) the Trustee may consult with counsel of its selection, and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (c) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement or any Enhancement Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Certificateholders, or any Enhancement Provider, pursuant to the provisions of this Agreement or any Enhancement Agreement, unless such Certificateholders or any Enhancement Provider shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligations, upon the occurrence of any Servicer Default (which has not been cured), to exercise such of the rights and powers vested in it by this Agreement and any Series Enhancement, and to use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of person's own affairs; (d) the Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (e) the Trustee shall not be bound to make any investigation into the facts of matters stated in any Assignment, the initial report, the annual Servicer's certificate, the monthly payment instructions and notification to the Trustee, the monthly Certificateholder's statement, any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by Holders of Investor Certificates evidencing more than 50% of the Invested Amount of any Series which could be adversely affected if the Trustee does not perform such acts; (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent, attorney or custodian appointed with due care by it hereunder; and (g) except as may be required by subsection 11.01(a) hereof, the Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Receivables or the Accounts for the purpose of establishing the presence or absence of defects, the compliance by the Transferor with its representations and warranties or for any other purpose. 11.3. Trustee Not Liable for Recitals in Certificates. The Trustee assumes no responsibility for the correctness of the recitals contained herein and in the certificates (other than the certificate of authentication on the Certificates). Except as set forth in Section 11.15, the Trustee makes no representations as to the validity or sufficiency of this Agreement or any Supplement or of the Certificates (other than the certificate of authentication 81 90 on the Certificates) or of any Receivable or related document. The Trustee shall not be accountable for the use or application by the Transferor of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Transferor or the Holders of the Transferor Certificates in respect of the Receivables or deposited in or withdrawn from the Collection Account, the Excess Funding Account or any Series Account by the Servicer. 11.4. Trustee May Own Certificates. Subject to Section 6.06, the Trustee in its individual or any other capacity may become the owner or pledgee of Investor Certificates or Supplemental Certificates with the same rights as it would have if it were not the Trustee. 11.5. Servicer To Pay Trustee's Fees and Expenses. The Servicer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to receive, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and the Servicer will pay or reimburse the Trustee (without reimbursement from the Collection Account or otherwise, except as provided in Section 3.02) upon its request for all reasonable expenses and disbursements incurred or made by the Trustee (including the fees and expenses of Trustee's counsel) in accordance with any of the provisions of this Agreement except any such expense or disbursement as may arise from its own negligence or bad faith and except as provided in the following sentence. If the Trustee is appointed Successor Servicer pursuant to Section 10.02, the provisions of this Section 11.05 shall not apply to expenses or disbursements made or incurred by the Trustee in its capacity as Successor Servicer. The obligations of the Transferor under this Section 11.05 shall survive the termination of the Trust and the resignation or removal of the Trustee. 11.6. Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a bank or a corporation organized and doing business under the laws of the United States of America or any state thereof and subject to supervision or examination by Federal or state authority and authorized under such laws to exercise corporate trust powers that either (x) has a long-term unsecured debt rating of at least Baa3 by Moody's and BBB- by Standard & Poor's and, in the case of an entity that is subject to risk-based capital adequacy requirements, risk-based capital of at least $50,000,000 or, in the case of an entity that is not subject to risk-based capital adequacy requirements, a combined capital and surplus of at least $50,000,000 or (y) shall otherwise be acceptable to each Rating Agency. If such bank or corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section 11.06, the combined capital and surplus of such bank or corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee shall not be an Affiliate of the Transferor. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 11.06, the Trustee shall resign immediately in the manner and with the effect specified in Section 11.07. 82 91 11.7. Resignation or Removal of Trustee. (a) The Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the Servicer. Upon receiving such notice of resignation, the Servicer shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 11.06 and shall fail to resign after written request therefor by the Servicer or the Transferor, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Servicer or Transferor may, but shall not be required to, remove the Trustee and promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. (c) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 11.07 shall not become effective until acceptance of appointment by the successor trustee as provided in Section 11.08 and any liability of the Trustee arising hereunder shall survive such appointment of a successor trustee. 11.8. Successor Trustee. (a) Any successor trustee appointed as provided in Section 11.07 shall execute, acknowledge and deliver to the Transferor, to the Servicer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents and statements held by it hereunder, and the Transferor and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section 11.08 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 11.06. (c) Upon acceptance of appointment by a successor trustee as provided in this Section 11.08, such successor trustee shall provide notice of such succession 83 92 hereunder to all Investor Certificateholders and the Servicer shall provide such notice to each Rating Agency and any Series Enhancer entitled thereto pursuant to the relevant Supplement. 11.9. Merger or Consolidation of Trustee. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 11.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. 11.10. Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 11.10, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable; provided, however, that the Trustee shall exercise due care in the appointment of any co-trustee. The Trustee shall notify the Rating Agencies of any such appointment of any such co-trustee. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 11.06 and no notice to Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 11.08. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act) except to the extent that under any laws of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder) the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and 84 93 \ (iii) the Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then-separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article XI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer. (d) Any separate trustee or co-trustee may at any time constitute the Trustee as its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. 11.11. Tax Returns. In the event the Trust shall be required to file tax returns, the Servicer, as soon as practicable after it is made aware of such requirement, shall prepare or cause to be prepared any tax returns required to be filed by the Trust and, to the extent possible, shall file such returns at least five days before such returns are due to be filed. The Trustee is hereby authorized to sign any such return on behalf of the Trust. The Servicer shall prepare or shall cause to be prepared all tax information required by law to be distributed to Certificateholders and shall deliver such information to the Trustee at least five days prior to the date it is required by law to be distributed to Certificateholders. The Servicer, upon request, will furnish the Trustee with all such information known to the Servicer as may be reasonably required in connection with the preparation of all tax returns of the Trust. In no event shall the Trustee, the Transferor or the Servicer be liable for any liabilities, costs or expenses of the Trust, the Investor Certificateholders or the Certificate Owners arising under any tax law, including without limitation federal, state, local or foreign income or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from a failure to comply therewith). 11.12. Trustee May Enforce Claims Without Possession of Certificates. All rights of action and claims under this Agreement or any Series of Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of any Series of 85 94 Certificates in respect of which such judgment has been obtained. 11.13. Suits for Enforcement. (a) If a Servicer Default shall occur and be continuing, the Trustee, in its discretion may, subject to the provisions of Sections 10.01 and 11.14, proceed to protect and enforce its rights and the rights of any Series of Certificates under this Agreement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or in aid of the execution of any power granted in this Agreement or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or any Series of Certificates. (b) Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Certificateholder any plan of reorganization, arrangement, adjustment or composition affecting the Certificates or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Certificateholder in any such proceeding. 11.14. Rights of Certificateholders To Direct Trustee. Holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount (or, with respect to any remedy, trust or power that does not relate to all Series, 50% of the aggregate Invested Amount of all Series to which such remedy, trust or power relates) shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that, subject to Section 11.01, the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unduly prejudicial to the rights of Certificateholders not parties to such direction; and provided further, that nothing in this Agreement shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction of such Holders of Investor Certificates. 11.15. Representations and Warranties of Trustee. The Trustee represents and warrants as of each Closing Date that: (a) the Trustee is a banking corporation organized, existing and authorized to engage in the business of banking under the laws of the State of New York; (b) the Trustee has full power, authority and right to execute, deliver and perform this Agreement and each Supplement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement and each Supplement; and (c) this Agreement and each Supplement has been duly executed 86 95 and delivered by the Trustee. 11.16. Maintenance of Office or Agency. The Trustee will maintain at its expense an office or agency (the "Corporate Trust Office") where notices and demands to or upon the Trustee in respect of the Certificates and this Agreement may be served in the Borough of Manhattan, the City of New York, in the case of Registered Certificates and Holders thereof. The Corporate Trust Office shall initially be located at 101 Barclay Street, 12th Floor East, New York, New York 10286. The Trustee will give prompt notice to the Servicer and to Investor Certificateholders of any change in the location of the Certificate Register or any such office or agency. ARTICLE XII Termination 12.1. Termination of Trust. The Trust and the respective obligations and responsibilities of the Transferor, the Servicer and the Trustee created hereby (other than the obligation of the Trustee to make payments to Investor Certificateholders as hereinafter set forth) shall terminate, except with respect to the duties described in Sections 8.04 and 12.02(b), upon the earliest of (i) January 1, 2050 and (ii) the day following the payment date on which the Aggregate Invested Amount and the Enhancement Investor Amount, if any, for each Series is zero (provided that the Transferor has delivered a written notice to the Trustee electing to terminate the Trust). 12.2. Final Distribution. (a) The Servicer shall give the Trustee at least 30 days' prior notice of the payment date on which the Investor Certificateholders of any Series or Class may surrender their Investor Certificates for payment of the final distribution on and cancellation of such Investor Certificates (or, in the event of a final distribution resulting from the application of Sections 2.06, 9.02 or 10.01, notice of such payment date promptly after the Servicer has determined that a final distribution will occur, if such determination is made less than 30 days prior to such payment date). Such notice shall be accompanied by an Officer's Certificate setting forth the information specified in Section 3.05 covering the period during the then-current calendar year through the date of such notice. Not later than the fifth day of the month in which the final distribution in respect of such Series or Class is payable to Investor Certificateholders, the Trustee shall provide notice to Investor Certificateholders of such Series or Class specifying (i) the date upon which final payment of such Series or Class will be made upon presentation and surrender of Investor Certificates of such Series or Class at the office or offices therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such payment date is not applicable, payments being made only upon presentation and surrender of such Investor Certificates at the office or offices therein specified (which, in the case of Bearer Certificates, shall be outside the United States). The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to Investor Certificateholders. 87 96 (b) Notwithstanding a final distribution to the Investor Certificateholders of any Series or Class (or the termination of the Trust), except as otherwise provided in this paragraph, all funds then on deposit in the Collection Account and any Series Account allocated to such Investor Certificateholders shall continue to be held in trust for the benefit of such Investor Certificateholders and the Paying Agent or the Trustee shall pay such funds to such Investor Certificateholders upon surrender of their Investor Certificates (and any excess shall be paid to the Holder of the Transferor Certificate). In the event that all such Investor Certificateholders shall not surrender their Investor Certificates for cancellation within six months after the date specified in the notice from the Trustee described in paragraph (a), the Trustee shall give a second notice to the remaining such Investor Certificateholders to surrender their Investor Certificates for cancellation and receive the final distribution with respect thereto (which surrender and payment, in the case of Bearer Certificates, shall be outside the United States). If within one year after the second notice all such Investor Certificates shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining such Investor Certificateholders concerning surrender of their Investor Certificates, and the cost thereof shall be paid out of the funds in the Collection Account or any Series Account held for the benefit of such Investor Certificateholders. The Trustee and the Paying Agent shall pay to the Transferor any monies held by them for the payment of principal or interest that remains unclaimed for two years. After payment to the Transferor, Investor Certificateholders entitled to the money must look to the Transferor for payment as general creditors unless an applicable abandoned property law designates another Person. (c) In the event that the Invested Amount with respect to any Series is greater than zero on its Series Termination Date or such earlier date as is specified in the related Supplement (after giving effect to deposits and distributions otherwise to be made on such date), the Trustee will sell or cause to be sold on such Series Termination Date, in accordance with the procedures and subject to the conditions described in such Supplement, Principal Receivables and the related Finance Charge Receivables (or interests therein) in an amount equal to 100% of the Invested Amount and accrued and unpaid interest thereon with respect to such Series on such date (after giving effect to such deposits and distributions; provided, however, that in no event shall such amount exceed such Series' Percentages of Receivables on such Series Termination Date). The proceeds from any such sale shall be allocated and distributed in accordance with the terms of the applicable Supplement. 11.3. Transferor's Termination Rights. Upon the termination of the Trust pursuant to Section 12.01 and the surrender of the Transferor Certificates, the Trustee shall assign and convey to the Holders of the Transferor Certificates or their designee, without recourse, representation or warranty, all right, title and interest of the Trust in the Receivables, whether then existing or thereafter created, all monies due or to become due and all amounts received with respect thereto and all proceeds thereof, except for amounts held by the Trustee pursuant to subsection 12.02(b). The Trustee shall execute and deliver such instruments of transfer and assignment, in each case without recourse, as shall be reasonably requested by the Transferor to vest in the Holders of the Transferor Certificates or any of their designees all right, title and interest which the Trust had in the Receivables and such other 88 97 related assets. 12.4. Defeasance. Notwithstanding anything to the contrary in this Agreement or any Supplement: (a) The Transferor may at its option be discharged from its obligations hereunder with respect to any Series or all outstanding Series (the "Defeased Series") on the date the applicable conditions set forth in subsection 12.04(c) are satisfied (a "Defeasance"); provided, however, that the following rights, obligations, powers, duties and immunities shall survive with respect to the Defeased Series until otherwise terminated or discharged hereunder: (i) the rights of the Holders of Investor Certificates of the Defeased Series to receive, solely from the trust fund provided for in subsection 12.04(c), payments in respect of principal of and interest on such Investor Certificates when such payments are due; (ii) the Transferor's obligations with respect to such Certificates under Sections 6.04 and 6.05; (iii) the rights, powers, trusts, duties, and immunities of the Trustee, the Paying Agent and the Registrar hereunder; and (iv) this Section 12.04. (b) Subject to subsection 12.04(c), the Transferor at its option may cause Collections allocated to the Defeased Series and available to purchase additional Receivables to be applied to purchase Eligible Investments rather than additional Receivables. (c) The following shall be the conditions to Defeasance under subsection 12.04(a): (i) the Transferor irrevocably shall have deposited or caused to be deposited with the Trustee (such deposit to be made from other than the Transferor's or any Affiliate of the Transferor's funds), under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust for making the payments described below, (a) Dollars in an amount, or (b) Eligible Investments which through the scheduled payment of principal and interest in respect thereof will provide, not later than the due date of payment thereon, money in an amount, or (c) a combination thereof, in each case sufficient to pay and discharge (without relying on income or gain from reinvestment of such amount), and which shall be applied by the Trustee to pay and discharge, all remaining scheduled interest and principal payments on all outstanding Investor Certificates of the Defeased Series on the dates scheduled for such payments in this Agreement and the applicable Supplements and all amounts owing to the Series Enhancers with respect to the Defeased Series; (ii) a statement from a firm of nationally recognized independent public accountants (who may also render other services to the Transferor) to the effect that such deposit is sufficient to pay the amounts specified in clause (i) above; (iii) prior to its first exercise of its 89 98 right pursuant to this Section 12.04 with respect to a Defeased Series to substitute money or Eligible Investments for Receivables, if any Series of Investor Certificates are outstanding that were characterized as debt at the time of their issuance, the Transferor shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit and termination of obligations will not cause the Trust to be an association or publicly traded partnership taxable as a corporation, and (in any case) an Opinion of Counsel to the effect that such deposit and termination of obligations will not result in the Trust being required to register as an "investment company" within the meaning of the Investment Company Act; (iv) the Transferor shall have delivered to the Trustee an Officer's Certificate of the Transferor stating the Transferor reasonably believes that such deposit and termination of obligations will not, based on the facts known to such officer at the time of such certification, then cause a Pay Out Event or Reinvestment Event with respect to any Series or any event that, with the giving of notice or the lapse of time, would result in the occurrence of a Pay Out Event with respect to any Series; and (v) the Rating Agency Condition shall have been satisfied and the Transferor shall have delivered copies of such written notice to the Servicer and the Trustee. 12.5. Optional Purchase. (a) If so provided in any Supplement, the Transferor may, but shall not be obligated to, cause a final distribution to be made in respect of the related Series of Investor Certificates on a specified Distribution Date or when the Invested Amount reaches a specified level or under any circumstances specified in such Supplement by depositing into the Collection Account or the applicable Series Account, not later than the Transfer Date preceding such Distribution Date, for application in accordance with Section 12.02, the amount specified in such Supplement. (b) The amount deposited pursuant to subsection 12.05(a) shall be paid to the Investor Certificateholders of the related Series pursuant to Section 12.02 on the related Distribution Date following the date of such deposit. All Certificates of a Series which are purchased by the Transferor pursuant to subsection 12.05(a) shall be delivered by the Transferor upon such purchase to, and be cancelled by, the Transfer Agent and Registrar and be disposed of in a manner satisfactory to the Trustee and the Transferor. The Invested Amount of each Series which is purchased by the Transferor pursuant to subsection 12.05(a) shall, for the purposes of the definitions of "Invested Amount" and "Transferor Amount," be deemed to be equal to zero on the Distribution Date following the making of the deposit, and the Transferor Amount shall thereupon be deemed to have been increased by the Invested Amount of such Series. 90 99 ARTICLE XIII Miscellaneous Provisions 13.1. Amendment; Waiver of Past Defaults. (a) This Agreement or any Supplement may be amended from time to time (including in connection with (x) the provision of additional Series Enhancement for the benefit of the Certificateholders of any Series (or the reduction of such Series Enhancement), (y) the addition of a Participation Interest to the Trust or (z) the designation of an Additional Transferor) by the Servicer, the Transferor (including, if applicable, any Additional Transferor being designated) and the Trustee without the consent of any of the Certificateholders, provided that (i) the Transferor shall have delivered to the Trustee an Officer's Certificate to the effect that the Transferor reasonably believes that such action will not have an Adverse Effect and (ii) the Rating Agency Condition shall have been satisfied with respect to any such amendment. Additionally, notwithstanding the preceding sentence, this Agreement and any Supplement may be amended by the Servicer and the Trustee at the direction of the Transferor without the consent of any of the Certificateholders or Series Enhancers to add, modify or eliminate such provisions as may be 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 Code, and (ii) to avoid the imposition of state or local income or franchise taxes imposed on the Trust's property or its income; provided, however, that (i) the Transferor delivers to the Trustee an Officer's Certificate to the effect that the proposed amendments meet the requirements set forth in this subsection, (ii) the Rating Agency Condition shall have been satisfied with respect to any such amendment and (iii) such amendment does not affect the rights, duties or obligations of the Trustee hereunder. The amendments which the Transferor may make without the consent of Certificateholders or Series Enhancers pursuant to the preceding sentence may include, without limitation, the addition of a sale of Receivables and termination of the Trust upon the occurrence of an Insolvency Event pursuant to Section 9.01 hereof. (b) This Agreement or any Supplement may also be amended from time to time by the Servicer, the Transferor and the Trustee, with the consent of the Holders of Investor Certificates evidencing not less than 66-2/3% of the aggregate Invested Amount of the Investor Certificates of all adversely affected Series, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or any Supplement or of modifying in any manner the rights of the Certificateholders; provided, however, that no such amendment shall (i) reduce in any manner the amount of or delay the timing of any distributions to be made to Investor Certificateholders or deposits of amounts to be so distributed or the amount available under any Series Enhancement without the consent of each affected Certificateholder, (ii) change the definition of or the manner of calculating the interest of any Investor Certificateholder without the consent of each affected Investor Certificateholder, (iii) reduce the aforesaid percentage required to consent to any such amendment without the consent of each Investor Certificateholder or (iv) adversely affect the rating of any Series or Class by each Rating Agency without the consent of the Holders of Investor Certificates of such 91 100 Series or Class evidencing not less than 66-2/3% of the aggregate Invested Amount of the Investor Certificates of such Series or Class. Any amendment to be effected pursuant to this paragraph shall be deemed not to adversely affect any outstanding Series with respect to which the Transferor shall deliver an Opinion of Counsel, addressed and delivered to the Trustee, that such action will not, in such counsel's reasonable opinion, have an Adverse Effect with respect to such Series. The Trustee may, but shall not be obligated to, enter into any such amendment which affects the Trustee's rights, duties or immunities under this Agreement or otherwise. (c) Promptly after the execution of any such amendment or consent (other than an amendment pursuant to paragraph (a)), the Trustee shall furnish notification of the substance of such amendment to each Investor Certificateholder, and the Servicer shall furnish notification of the substance of such amendment to each Rating Agency. (d) It shall not be necessary for the consent of Investor Certificateholders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Investor Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe. (e) Any Supplement executed in accordance with the provisions of subsection 6.03(b) shall not be considered an amendment to this Agreement for the purposes of this Section. (f) The Holders of Investor Certificates evidencing more than 66-2/3% of the aggregate Invested Amount of the Investor Certificates of each Series, or with respect to any Series with two or more Classes, of each Class (or with respect to any default that does not relate to all Series, 66-2/3% of the aggregate Invested Amount of the Investor Certificates of each Series to which such default relates or, with respect to any such Series with two or more Classes, of each Class) may, on behalf of all Certificateholders, waive any default by the Transferor or the Servicer in the performance of their obligations hereunder and its consequences, except the failure to make any distributions required to be made to Investor Certificateholders or to make any required deposits of any amounts to be so distributed. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereto except to the extent expressly so waived. 13.2. Protection of Right, Title and Interest to Trust. (a) The Servicer shall cause this Agreement, all amendments and supplements hereto and all financing statements and continuation statements and any other necessary documents covering the Certificateholders' and the Trustee's right, title and interest to the Trust to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Certificateholders and the Trustee hereunder to all property comprising the Trust. The Servicer shall deliver to the Trustee file- 92 101 stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. The Transferor shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this paragraph. (b) Within 30 days after any Transferor makes any change in its name, identity or corporate structure which would make any financing statement or continuation statement filed in accordance with paragraph (a) seriously misleading within the meaning of Section 9-402(7) (or any comparable provision) of the UCC, such Transferor shall give the Trustee notice of any such change and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trust's security interest in the Receivables and the proceeds thereof. (c) Each Transferor and the Servicer will at all times maintain each office from which it services Receivables and its principal executive offices within the United States. (d) The Transferor will deliver to the Trustee: (i) upon the execution and delivery of each amendment of this Agreement or any Supplement, an Opinion of Counsel to the effect specified in Exhibit G-1; and (ii) on each Addition Date on which any Additional Accounts (other than Automatic Additional Accounts) are to be designated as Accounts pursuant to subsections 2.09(a) or (b) and on each date specified in subsection 2.09(d)(iii) with respect to the designation of Automatic Additional Accounts as Accounts, an Opinion of Counsel substantially in the form of Exhibit G-2, and on each Addition Date on which any Participation Interests are to be included in the Trust pursuant to subsections 2.09(a) or (b), an Opinion of Counsel covering the same substantive legal issues addressed by Exhibit G-2 but conformed to the extent appropriate to relate to Participation Interests. 13.3. Limitation on Rights of Certificateholders. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust, nor shall such death or incapacity entitle such Certificateholders' legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) No Investor Certificateholder shall have any right to vote (except as expressly provided in this Agreement) or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Investor Certificateholders from time to time as partners or members of an association, nor shall any Investor Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Investor Certificateholder shall have any right by virtue of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law 93 102 upon or under or with respect to this Agreement, unless such Investor Certificateholder previously shall have made, and unless the Holders of Investor Certificates evidencing more than 50% of the aggregate unpaid principal amount of all Investor Certificates (or, with respect to any such action, suit or proceeding that does not relate to all Series, 50% of the aggregate unpaid principal amount of the Investor Certificates of all Series to which such action, suit or proceeding relates) shall have made, a request to the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after such request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Investor Certificateholder with every other Investor Certificateholder and the Trustee, that no one or more Investor Certificateholders shall have any right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of the Investor Certificates, or to obtain or seek to obtain priority over or preference to any other such Investor Certificateholder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Investor Certificateholders except as otherwise expressly provided in this Agreement. For the protection and enforcement of the provisions of this Section, each and every Investor Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. 13.4. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 13.5. Notices; Payments. (a) All demands, notices, instructions, directions and communications (collectively, "Notices") under this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered at, mailed by registered mail, return receipt requested, or sent by facsimile transmission (i) in the case of the Transferor, to NextCard Funding Corp., 595 Market Street, Suite 2250, San Francisco, California 94105, Attn: Chief Financial Officer, (ii) in the case of the Servicer, to NextCard, Inc., 595 Market Street, Suite 950, San Francisco, California 94105, Attn: Chief Financial Officer (facsimile no. 415-836-9701), (iii) in the case of the Paying Agent or the Trustee, Transfer Agent and Registrar, to 101 Barclay Street, 12th Floor East, New York, New York, 10286, Attention: Corporate Trust Administration (facsimile no. (212) 815-5544), (iv) in the case of Moody's, to 99 Church Street, New York, New York 10007, Attn: ABS Monitoring Department, 4th Floor (facsimile no. 212-553-4600), (v) in the case of Standard & Poor's, to 26 Broadway, New York, New York 10004, Attn: Asset Backed Group, 15th Floor (facsimile no. 212-412-0323), (vi) in the case of Fitch, to One State Street Plaza, New York, New York, Attention: Structured Finance Department (facsimile no. (212) 480-4438), and (vii) to any other Person as specified in any Supplement; or, as to each party, at such other address or facsimile number as shall be designated by such party in 94 103 a written notice to each other party. (b) Any Notice required or permitted to be given to a Holder of Registered Certificates shall be given by first-class mail, postage prepaid, at the address of such Holder as shown in the Certificate Register. No Notice shall be required to be mailed to a Holder of Bearer Certificates or Coupons but shall be given as provided below. Any Notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Investor Certificateholder receives such Notice. In addition, (a) if and so long as any Series or Class is listed on the Luxembourg Stock Exchange and such Exchange shall so require, any Notice to Investor Certificateholders shall be published in an Authorized Newspaper of general circulation in Luxembourg within the time period prescribed in this Agreement and (b) in the case of any Series or Class with respect to which any Bearer Certificates are outstanding, any Notice required or permitted to be given to Investor Certificateholders of such Series or Class shall be published in an Authorized Newspaper within the time period prescribed in this Agreement. 13.6. Rule 144A Information. For so long as any of the Investor Certificates of any Series or Class are "restricted securities" within the meaning of Rule 144(a)(3) under the Act, each of the Transferor, the Trustee, the Servicer and any Series Enhancer agree to cooperate with each other to provide to any Investor Certificateholders of such Series or Class and to any prospective purchaser of Certificates designated by such an Investor Certificateholder, upon the request of such Investor Certificateholder or prospective purchaser, any information required to be provided to such holder or prospective purchaser to satisfy the condition set forth in Rule 144A(d)(4) under the Act. 13.7. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such provisions shall be deemed severable from the remaining provisions of this Agreement and shall in no way affect the validity or enforceability of the remaining provisions or of the Certificates or the rights of the Certificateholders. 13.8. Assignment. Notwithstanding anything to the contrary contained herein, except as provided in Section 8.02, this Agreement may not be assigned by the Servicer without the prior consent of Holders of Investor Certificates evidencing not less than 66-2/3% of the Aggregate Invested Amount. The Servicer shall give the Rating Agencies prior written notice of any such assignment. 13.9. Certificates Nonassessable and Fully Paid. It is the intention of the parties to this Agreement that the Certificateholders shall not be personally liable for obligations of the Trust, that the interests in the Trust represented by the Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever and that Certificates upon authentication thereof by the Trustee pursuant to Section 6.02 are and shall be deemed fully paid. 13.10. Further Assurances. The Transferor and the Servicer agree to do and perform, from time to time, any and all acts and to execute any and all 95 104 further instruments required or reasonably requested by the Trustee more fully to effect the purposes of this Agreement, including the execution of any financing statements or continuation statements relating to the Receivables for filing under the provisions of the UCC of any applicable jurisdiction. 13.11. Nonpetition Covenant. Notwithstanding any prior termination of this Agreement, the Servicer, the Trustee, each Transferor, each Series Enhancer and each Holder of a Certificate shall not, prior to the date which is one year and one day after the termination of this Agreement with respect to the Trust, acquiesce, petition or otherwise invoke or cause the Trust or the Transferor to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Trust or the Transferor under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trust or the Transferor or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Trust or the Transferor. 13.12. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Trustee or the Certificateholders, any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided under this Agreement are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. 13.13. Counterparts. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 13.14. Third-Party Beneficiaries. This Agreement will inure to the benefit of and be binding upon the parties hereto, the Certificateholders, any Series Enhancer (to the extent provided in this Agreement and the related Supplement) and their respective successors and permitted assigns. Except as otherwise expressly provided in this Agreement, no other Person will have any right or obligation hereunder. 13.15. Actions by Certificateholders. (a) Wherever in this Agreement a provision is made that an action may be taken or a Notice given by Certificateholders, such action or Notice may be taken or given by any Certificateholder, unless such provision requires a specific percentage of Certificateholders. (a) Any Notice, request, authorization, direction, consent, waiver or other act by the Holder of a Certificate shall bind such Holder and every subsequent Holder of such Certificate and of any Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee, the Transferor or the Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. 96 105 13.16. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. 13.17. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 13.18. Construction of Agreement. It is the express intent of the parties hereto that the transfer of the Receivables to the Trustee pursuant to this Agreement to be, and be construed as, an absolute assignment to the Trustee, and not a borrowing by the Transferor secured by the Receivables. It is, further, not the intention of the parties that such transfer be deemed a pledge of the Receivables by the Transferor to the Trustee to secure a debt of the Transferor. However, if it should be determined that, notwithstanding the intent of the parties, the Receivables are held to be property of the Transferor, or if for any reason this Agreement is held or deemed to create a security interest, then (a) this Agreement shall be deemed to be a security agreement within the meaning of the applicable Uniform Commercial Code, and (b) the transfer provided for in this Agreement shall be the grant of a security interest to the Trustee on behalf of the Trust, for the benefit of the Certificateholders in all of the Transferor's right, title and interest, whether now owned or hereafter acquired, in, to and under the Receivables existing at the close of business on the Initial Cut-Off Date, in the case of Receivables arising in the Initial Accounts, and on each Addition Cut-Off Date, in the case of Receivables arising in the Additional Accounts, and in each case thereafter created from time to time until the termination of the Trust, all monies due or to become due and all amounts received with respect thereto (including any and all Recoveries) and all proceeds (including "proceeds" as defined in the UCC) thereof and any other Trust Assets. This Agreement shall constitute a security agreement under applicable law. 97 106 IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. NextCard Funding Corp., Transferor, By /s/ John V. Hashman --------------------------------- Name: John V. Hashman Title: Chief Financial Officer NextCard, Inc., Servicer, By /s/ John V. Hashman --------------------------------- Name: John V. Hashman Title: Chief Financial Officer THE BANK OF NEW YORK, as Trustee and as Securities Intermediary under Section 4.02 of this Agreement By /s/ Kimberly Gilfoil --------------------------------- Name: Kimberly Gilfoil Title: Assistant Treasurer 98 EX-10.2 3 SERIES 1999-1 SUPPLEMENT, DATED AS OF MAY 21, 1999 1 TABLE OF CONTENTS
PAGE ARTICLE I Creation of the Series 1999-1 Certificates..............................1 Section 1.01. Designation........................................................1 ARTICLE II Definitions.............................................................2 Section 2.01. Definitions........................................................2 ARTICLE III Servicing Fee..........................................................11 Section 3.01. Servicing Compensation............................................11 ARTICLE IV Rights of Series 1999-1 Certificateholders and Allocation and Application of Collections.............................................11 Section 4.01. Collections and Allocations.......................................11 Section 4.02. Determination of Monthly Interest.................................13 Section 4.03. Suspension of the Revolving Period; Limited Amortization Period............................................................14 Section 4.04. Required Amount...................................................14 Section 4.05. Application of Series 1999-1 Allocable Finance Charge Collections and Available Principal Collections...................14 Section 4.06. Defaulted Amounts; Investor Charge-Offs...........................15 Section 4.07. Excess Spread and Excess Finance Charge Collections...............16 Section 4.08. Excess Finance Charge Collections.................................16 Section 4.09. Shared Principal Collections......................................17 Section 4.10. Invested Amount Increases.........................................17 Section 4.11. Reserve Account...................................................18 Section 4.12. Interest Rate Caps................................................19
2 2 TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE V Distributions and Reports to Series 1999-1 Certificateholders..........21 Section 5.01. Distributions.....................................................21 Section 5.02. Reports and Statements to Certificateholders......................21 ARTICLE VI Pay Out Events.........................................................21 Section 6.01. Pay Out Events....................................................21 ARTICLE VII Optional Repurchase; Series Termination................................23 Section 7.01. Optional Repurchase...............................................23 Section 7.02. Series Termination................................................24 ARTICLE VIII Final Distributions....................................................24 Section 8.01. Sale of Receivables or Certificateholders' Interest pursuant to Section 2.06 or 10.01 of the Agreement and Section 7.01 or 7.02 of this Supplement........................................24 ARTICLE IX Miscellaneous Provisions...............................................25 Section 9.01. Ratification of Agreement.........................................25 Section 9.02. Counterparts......................................................25 Section 9.03. Governing Law.....................................................25 Section 9.04. Private Placement of Series 1999-1 Certificates; Form of Delivery of Series 1999-1 Certificates............................25 Section 9.05. Successors and Assigns............................................26 Section 9.06. Amendments........................................................26
3 3
PAGE Section 9.07. Amendments to Agreement...........................................26 Section 9.08. Tax Matters.......................................................27
4 4 SERIES 1999-1 SUPPLEMENT, dated as of June 16, 1999 (the "Supplement"), among NEXTCARD FUNDING CORP., a Delaware corporation, as Transferor, NEXTCARD, INC., a Delaware corporation, as Servicer, and THE BANK OF NEW YORK, a New York banking corporation, as Trustee. Pursuant to the Pooling and Servicing Agreement, dated as of December 1, 1998, as amended and restated by the Amended and Restated Pooling and Servicing Agreement, dated as of May 21, 1999 (as amended, restated and supplemented, the "Agreement"), among the Transferor, the Servicer and the Trustee, the Transferor has created the NextCard Master Trust I (the "Trust"). Section 6.03 of the Agreement provides that the Transferor may from time to time direct the Trustee to authenticate one or more new Series of Investor Certificates representing fractional undivided interests in the Trust. The Principal Terms of any new Series are to be set forth in a Supplement to the Agreement. Pursuant to this Supplement, the Transferor and the Trustee shall create a new Series of Investor Certificates and specify the Principal Terms thereof. ARTICLE I Creation of the Series 1999-1 Certificates Section 1.01. Designation. (a) There is hereby created a Series of Investor Certificates to be issued pursuant to the Agreement and this Supplement to be known as "NextCard Master Trust I, Series 1999-1." The Series 1999-1 Certificates shall be known as the "Series 1999-1 Variable Funding Certificates." (b) Series 1999-1 shall be a Principal Sharing Series. Series 1999-1 shall be an Excess Allocation Series. Series 1999-1 shall not be subordinated to any other Series. Notwithstanding any provision in the Agreement or in this Supplement to the contrary, the first Distribution Date with respect to Series 1999-1 shall be the August 16, 1999 Distribution Date and the first Monthly Period shall begin on and include the Closing Date and end on and include July 31, 1999. The Closing Date shall be a Discount Option Date and the Discount Percentage shall be [*] or such other percentage as shall be mutually acceptable to the Transferor and the Administrative Agent, which Discount Percentage shall apply to all Principal Receivables (without giving effect to the proviso in the definition of Principal Receivables) arising on or after the Closing Date. Notwithstanding anything to the contrary in the Agreement, the Transferor shall not reduce or withdraw such Discount Percentage or otherwise modify the application thereof unless the Rating Agency Condition shall have been satisfied with respect to such action. ARTICLE II Definitions "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 5 5 Section 2.01. Definitions. (a) Whenever used in this Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and the masculine as well as the feminine and neuter genders of such terms. "Account Origination Agreement" shall mean the Amended and Restated Account Origination Agreement by and between the Servicer, the Transferor and Heritage Bank of Commerce dated as of May 21, 1999, as amended from time to time in accordance with the terms thereof. "Additional Amounts" shall have the meaning specified in the Certificate Purchase Agreement. "Additional Interest" shall have the meaning specified in Section 4.02(b). "Administrative Agent" shall mean ING Baring (U.S.) Capital Markets, LLC, in its capacity as agent under the Certificate Purchase Agreement, and any successor thereto appointed pursuant to the Certificate Purchase Agreement. "Amortization Period" shall mean, with respect to Series 1999-1, as the context requires, the Scheduled Amortization Period, the Early Amortization Period or any Limited Amortization Period. "Available Principal Collections" shall mean, with respect to any Monthly Period, an amount equal to the sum of (a) the Series 1999-1 Allocable Principal Collections received during such Monthly Period, (b) any Shared Principal Collections with respect to other Series that are allocated to Series 1999-1 in accordance with Section 4.04 of the Agreement and Section 4.09 hereof and (c) any other amounts which pursuant to Section 4.05, 4.07 or 4.11 hereof are to be treated as Available Principal Collections with respect to the related Distribution Date. "Average Invested Amount" shall mean, for any period, the sum of the Invested Amounts for each day in such period divided by the number of days in such period. "Bank" shall mean Heritage Bank of Commerce. "Base Rate" shall mean, with respect to any Monthly Period, the annualized percentage equivalent of a fraction, (a) the numerator of which is the sum of the Monthly Interest and the Monthly Servicing Fee for such Monthly Period and (b) the denominator of which is the Average Invested Amount as of the last day of such Monthly Period. "Cap Rate" shall mean [*] per annum. "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 6 6 "Certificate Assignment" shall have the meaning specified in Section 9.08(e). "Certificate Purchase Agreement" shall mean the Certificate Purchase Agreement, dated as of June 16, 1999, among the Transferor, the Servicer, the Administrative Agent and the Purchaser, and all amendments thereto. "Certificate Rate" shall have the meaning specified in the Certificate Purchase Agreement. "Certificateholder" shall mean the Person in whose name a Certificate is registered in the Certificate Register. "Certificates" shall mean any one of the Series 1999-1 Variable Funding Certificates executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A. "Closing Date" shall have the meaning specified in the Certificate Purchase Agreement. "Credit Bureau Agency" shall mean any of Trans Union LLC, Experian Inc. or Equifax Inc., or any of their respective successors. "Distribution Date" shall mean August 16, 1999, and the fifteenth day of each calendar month thereafter, or if such fifteenth day is not a Business Day, the next succeeding Business Day. "Early Amortization Period" shall mean the period commencing at the close of business on the Business Day immediately preceding the day on which a Pay Out Event with respect to Series 1999-1 is deemed to have occurred, and ending on the first to occur of (i) the payment in full of the Invested Amount and (ii) the Series 1999-1 Termination Date. "Excess Spread" shall mean, with respect to any Distribution Date, the sum of the amounts, if any, specified pursuant to subsections 4.05(a)(iv). "Excess Spread Percentage" shall mean, for any Monthly Period, the difference between the Portfolio Yield and the Base Rate for such Monthly Period. "FICO Score" shall mean , with respect to any Obligor, the average of any two of the risk scores indicated on such Obligor's credit reports, as calculated by the applicable Credit Bureau Agency using software developed by Fair, Isaac and Co., Inc. "Finance Charge Shortfall" shall have the meaning specified in Section 4.08. "Increase Amount" shall have the meaning specified in Section 4.10(a). 7 7 "Increase Conditions" shall mean, with respect to any requested Invested Amount Increase hereunder, all of the following: (a) the request with respect to such Invested Amount Increase shall have been delivered to the Trustee, the Administrative Agent and the Servicer by the time, and shall otherwise conform to the requirements, specified in Section 4.10(a); (b) after giving effect to such Invested Amount Increase, the Invested Amount shall not exceed the Maximum Invested Amount; (c) no Pay Out Event or event that, after the giving of notice or the lapse of time, would constitute a Pay Out Event, has occurred and is continuing or would result from such Invested Amount Increase; (d) the Scheduled Amortization Period shall not have commenced as of such Increase Date; (e) all of the representations and warranties of the Transferor and the Servicer set forth in the Agreement shall be true and correct as though made on and as of such Increase Date (except that representations and warranties set forth in Sections 2.04(a)(ii), (vii), (viii) and (ix) shall be deemed to be made only as of the applicable date specified in such sections); (f) after giving effect to such Invested Amount Increase, the Transferor Percentage shall be equal to or greater than the Required Transferor Percentage on such date; (g) the Servicer shall have delivered to the Administrative Agent a copy of the Servicer Report prepared as of the immediately prior Determination Date, signed by a Servicing Officer; (h) the Interest Rate Cap Requirement is satisfied on such date; (i) as of the most recent Distribution Date preceding the applicable Increase Date, no unreimbursed Investor Charge-Offs remain outstanding; (j) the amount on deposit in the Reserve Account shall equal the Required Reserve Account Amount on such Increase Date after giving effect to the Invested Amount Increase and the Required Reserve Account Addition made on such Increase Date; (k) as of the most recent preceding Determination Date, the Excess Spread 8 8 Percentage is equal to or greater than [*]; and (l) the Transferor shall have delivered to the Trustee, the Administrative Agent and the Servicer an Officer's Certificate dated as of such Increase Date certifying that the conditions described in paragraphs (a) through (k) above have been satisfied. "Increase Date" shall have the meaning specified in Section 4.10(a). "Initial Invested Amount" shall mean $0. "Interest Period" shall mean, with respect to any Distribution Date, the period from and including the Distribution Date immediately preceding such Distribution Date (or, in the case of the first Distribution Date, from and including the Closing Date) to but excluding such Distribution Date. "Interest Rate Cap" shall mean an interest rate cap agreement for the benefit of the Trust between the Trustee, acting on behalf of the Trust, and an Interest Rate Cap Provider, substantially in the form of Exhibit D, obtained by the Transferor pursuant to Section 4.12(a) and having a cap rate equal to the Cap Rate, or any Replacement Interest Rate Cap or Qualified Substitute Arrangement with respect thereto. "Interest Rate Cap Payment" shall mean, with respect to any Distribution Date, any payment required to be made on the preceding Business Day by an Interest Rate Cap Provider to the Trustee for deposit in the Collection Account as Series 1999-1 Allocable Finance Charge Collections. "Interest Rate Cap Provider" shall mean any obligor under an Interest Rate Cap, or if any Replacement Interest Rate Cap or Qualified Substitute Arrangement is obtained for such Interest Rate Cap pursuant to Section 4.12, any obligor with respect to such Replacement Interest Rate Cap or Qualified Substitute Arrangement. "Interest Rate Cap Requirement" shall mean as of any date of determination, that (i) the Trust shall have the benefits of Interest Rate Caps, Replacement Interest Rate Caps or Qualified Substitute Arrangements satisfying the requirements of Section 4.12 and (ii) the long-term unsecured debt ratings of each Interest Rate Cap Provider shall be at least AA by Standard & Poor's and Aa2 by Moody's or the short-term unsecured debt ratings of the Interest Rate Cap Provider shall be at least A-1 by Standard & Poor's and P-1 by Moody's; provided, however, that if ING Baring (U.S.) Capital Markets, LLC or an Affiliate thereof is an Interest Rate Cap Provider, no rating requirement will apply to such Interest Rate Cap Provider. "Interest Shortfall" shall have the meaning specified in Section 4.02(b). "Invested Amount" shall mean, on any date of determination, an amount equal to (a) the Initial Invested Amount, plus (b) the aggregate principal amount of Invested Amount "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 9 9 Increases pursuant to Section 4.10 on or prior to such date, minus (c) the aggregate amount of principal payments made to the Certificateholders on or prior to such date, minus (d) the excess, if any, of the aggregate amount of Investor Charge-Offs for all prior Distribution Dates over Investor Charge-Offs reimbursed pursuant to Section 4.07(b) prior to such date. "Invested Amount Increase" shall have the meaning specified in Section 4.10(a). "Investment Letter" shall mean an Investment Letter substantially in the form of Exhibit C executed by a Certificateholder. "Investor Charge-Offs" shall have the meaning specified in Section 4.06. "Investor Default Amount" shall mean, with respect to any Monthly Period, an amount equal to the product of (a) the Defaulted Amount for the related Monthly Period and (b) the Series 1999-1 Floating Allocation Percentage for such Monthly Period. "Limited Amortization Amount" shall have the meaning specified in Section 4.03. "Limited Amortization Period" shall mean, unless the Scheduled Amortization Period or the Early Amortization Period shall have commenced prior thereto, a period beginning on the first day of the Monthly Period specified in the notice delivered by the Transferor in accordance with Section 4.03, and ending upon the first to occur of (i) the commencement of the Scheduled Amortization Period or the Early Amortization Period and (ii) the last day of the Monthly Period related to the Distribution Date on which the applicable Limited Amortization Amount shall have been paid in full. "Maximum Invested Amount" shall mean an amount equal to the Purchase Commitment in effect from time to time. "Monthly Interest" shall have the meaning specified in the Certificate Purchase Agreement. "Monthly Servicer Report" shall have the meaning specified in Section 5.02. "Monthly Servicing Fee" shall have the meaning specified in Section 3.01. "Notional Amount" shall mean the notional amount of any Interest Rate Cap. "Official Body" shall mean any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality thereof, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Partial Participant" shall have the meaning specified in Section 9.08(f). "Participant" shall have the meaning specified in Section 9.08(f). 10 10 "Pay Out Event" shall mean any Pay Out Event specified in Section 6.01. "Payment Rate" shall mean, for any Monthly Period, the percentage equivalent of a fraction, the numerator of which is the aggregate amount of Collections of Receivables during such Monthly Period and the denominator of which is the aggregate amount of Receivables outstanding as of the first day of such Monthly Period. "Portfolio Yield" shall mean, with respect to any Monthly Period, the annualized percentage equivalent of a fraction, (a) the numerator of which is equal to (i) the amount of Series 1999-1 Allocable Finance Charge Collections with respect to such Monthly Period minus (ii) the Investor Default Amount for such Monthly Period and (b) the denominator of which is the Average Invested Amount for such Monthly Period. "Private Holder" shall mean each holder of a right to receive interest or principal in respect of any direct or indirect interest in the Trust including any financial instrument or contract the value of which is determined in whole or part by reference to the Trust (including the Trust's assets, income of the Trust or distributions made by the Trust), excluding any interest in the Trust represented by any Series or Class of Certificates or any other interest as to which the Transferor has provided to the Trustee an Opinion of Counsel to the effect that such Series, Class or other interest will be treated as debt or otherwise not as an equity interest in either the Trust or the Receivables for federal income tax purposes, in each case, provided such interest is not convertible or exchangeable into an interest in the Trust or the Trust's income or equivalent value. Notwithstanding the immediately preceding sentence, "Private Holder" shall also include any other Person that the Transferor determines is (or may be) a "partner" within the meaning of Section 1.7704-1(h)(1)(ii) of the United States Treasury Regulations (including by reason of Section 1.7704-1(h)(3)). Private Holders include the holders of the Transferor Certificate or any interest therein, the interest of the Servicer, and any interest described in Section 12.02(c) of the Agreement. Any Person holding more than one interest in the Trust each of which separately would cause such Person to be a Private Holder shall be treated as a single Private Holder. Each holder of an interest in a Private Holder which is a partnership, S corporation or a grantor trust under the Code shall be treated as a Private Holder unless excepted with the consent of the Transferor. "Purchase Commitment" shall have the meaning specified in the Certificate Purchase Agreement. "Purchaser" shall mean Holland Limited Securitization, Inc., a Delaware corporation, together with its successors and permitted assigns. "Qualified Substitute Arrangement" shall have the meaning specified in Section 4.12(b). [*] "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 11 11 [*] "Reassignment Amount" shall mean, with respect to any Distribution Date, after giving effect to any deposits and distributions otherwise to be made on such Distribution Date, the sum of (i) the Invested Amount on such Distribution Date, plus (ii) Monthly Interest for such Distribution Date and any Monthly Interest previously due but not distributed to the Series 1999-1 Certificateholders, plus (iii) the amount of any Additional Interest, if any, for such Distribution Date and any Additional Interest previously due but not distributed to the Certificateholders on a prior Distribution Date. "Replacement Interest Rate Cap" shall mean any interest rate cap having the same terms and conditions as the form of interest rate agreement set forth in Exhibit D, in the case of a replacement to an Interest Rate Cap, and otherwise satisfying the conditions set forth in Section 4.12. "Required Amount" shall have the meaning specified in Section 4.04. "Required Excess Spread Reserve Account Percentage" shall mean, with respect to any Determination Date or Increase Date, the percentage in the right-hand column below corresponding to the applicable Three-Month Average Excess Spread Percentage set forth in the left-hand column below:
Three-Month Average Required Excess Spread Excess Spread Percentage Reserve Account Percentage ------------------------ -------------------------- < [*] [*]% >= [*] and < [*] [*]% >= [*] [*]%
provided, that, if the Required Excess Spread Reserve Account Percentage has at any time increased, then the Required Excess Spread Reserve Account Percentage shall not decrease below the increased percentage unless a lower percentage is the appropriate Required Excess Spread Reserve Account Percentage for [*] provided, further, that each of the Required Excess Spread Reserve Account Percentages set forth in the right-hand column above shall be increased by (i) 1.0% if the average of the ratios of Defaulted Receivables to Principal Receivables determined on any three consecutive prior Monthly Periods equals or exceeds [*]% and (ii) 1.0% if the average of the Payment Rates for any three consecutive prior Monthly Periods shall be equal to or less than [*]% on any Determination Date. "Required Reserve Account Addition" shall have the meaning specified in Section 4.10(a). "Required Reserve Account Amount" shall mean, with respect to any "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 12 12 Determination Date or Increase Date, the product of (a)(i) in the case of any Determination Date, the Invested Amount for the Distribution Date following such Determination Date after giving effect to the principal distributions to be made on such Distribution Date and (ii) in the case of any Increase Date, the Invested Amount after giving effect to the Invested Amount Increase on such Increase Date, and (b) the greater of (i) [*] and (ii) the Required Excess Spread Reserve Account Percentage for such Determination Date or Increase Date; provided, however, that the Required Reserve Account Amount shall in no event be reduced below [*]. "Reserve Account" shall have the meaning specified in Section 4.11(a). "Reserve Account Deficiency" shall have the meaning specified in Section 4.07(c). "Reset Date" shall mean each of (a) an Addition Date, (b) a Removal Date, and (c) a date on which an Invested Amount Increase occurs. "Revolving Period" shall mean the period beginning at the close of business on the Closing Date and ending on the earlier of (a) the close of business on the day immediately preceding the day the Scheduled Amortization Period commences and (b) the close of business on the day immediately preceding the day the Early Amortization Period commences; provided, however, that the Revolving Period shall be temporarily suspended for the duration of any Limited Amortization Period. "Scheduled Amortization Date" shall mean the last day of the January 2002 Monthly Period. "Scheduled Amortization Period" shall mean, unless a Pay Out Event with respect to Series 1999-1 shall have occurred prior thereto, the period commencing on the Scheduled Amortization Date and ending upon the first to occur of (x) the commencement of the Early Amortization Period, (y) the payment in full of the Invested Amount and (z) the Series 1999-1 Termination Date; provided, however, that the commencement of the Scheduled Amortization Period may occur on such later date as may be mutually agreed upon by the Administrative Agent and the Transferor. "Series 1999-1" shall mean the Series of Certificates the terms of which are specified in this Supplement. "Series 1999-1 Allocable Finance Charge Collections" shall mean an amount equal to, with respect to any Monthly Period, the product of (i) the Series 1999-1 Floating Allocation Percentage and (ii) Collections of Finance Charge Receivables received by the Servicer during such Monthly Period, plus any Interest Rate Cap Payments received from any Interest Rate Cap Provider prior to the Distribution Date in the month following such Monthly Period. "Series 1999-1 Allocable Principal Collections" shall mean an amount equal to, "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 13 13 (a) with respect to any Monthly Period during the Revolving Period, the product of (i) the Series 1999-1 Floating Allocation Percentage and (ii) Collections of Principal Receivables received by the Servicer during such Monthly Period, and (b) with respect to any Monthly Period during an Amortization Period, the product of (i) the Series 1999-1 Fixed Allocation Percentage and (ii) Collections of Principal Receivables received by the Servicer during such Monthly Period. "Series 1999-1 Certificateholders' Interest" shall mean the Certificateholders' Interest for Series 1999-1. "Series 1999-1 Fixed Allocation Percentage" shall mean an amount equal to, with respect to any Monthly Period during an Amortization Period, the percentage equivalent of a fraction, the numerator of which is the Invested Amount as of the last day of the Revolving Period and the denominator of which is the greatest of (a) the aggregate amount of Principal Receivables plus the amount then on deposit in the Excess Funding Account, in each case as of the last day of such Monthly Period, (b) the Trust Invested Amount as of such last day and (c) the sum of the numerators used to calculate the fixed allocation percentages for all Series then outstanding for such Monthly Period; provided, however, that with respect to any Monthly Period in which one or more Reset Dates occurs, the Series 1999-1 Fixed Allocation Percentage shall be recalculated as provided above but as of such Reset Date for the period from and after the date on which any such Reset Date occurs to but excluding the date (if any) that another such Reset Date occurs or, if no other Reset Date occurs during such Monthly Period, to and including the last day of such Monthly Period. "Series 1999-1 Floating Allocation Percentage" shall mean an amount equal to, with respect to any Monthly Period, the percentage equivalent of a fraction, the numerator of which is the Invested Amount as of the last day of the immediately preceding Monthly Period and the denominator of which is the greater of (a) the aggregate amount of Principal Receivables plus the amount then on deposit in the Excess Funding Account, in each case as of as of the last day of such Monthly Period, and (b) the Trust Invested Amount as of such last day; provided, however, that with respect to any Monthly Period in which one or more Reset Dates occurs, the Series 1999-1 Floating Allocation Percentage shall be recalculated as provided above but as of such Reset Date for the period from and after the date on which any such Reset Date occurs to but excluding the date (if any) that another such Reset Date occurs or, if no other Reset Date occurs during such Monthly Period, to and including the last day of such Monthly Period. "Series 1999-1 Termination Date" shall mean the Distribution Date occurring in the 36th calendar month following the earlier to occur of (x) the commencement of the Scheduled Amortization Period or (y) the commencement of the Early Amortization Period. "Series Percentage" shall mean for any Monthly Period, (a) with respect to Finance Charge Receivables and Defaulted Amounts at any time and Principal Receivables during the Revolving Period, the Series 1999-1 Floating Allocation Percentage and (b) with respect to Principal Receivables during any Amortization Period, the Series 1999-1 Fixed Allocation Percentage. 14 14 "Servicing Fee Rate" shall mean 2.0% per annum. "Shared Principal Collections" shall mean Shared Principal Collections as defined and described in Section 4.04 of the Agreement; amounts to be treated as Shared Principal Collections under this Supplement are described in subsections 4.05(b)(ii) and (c)(ii). "Three-Month Average Excess Spread" shall mean, (i) for any Determination Date or Increase Date occurring on or after the Determination Date in any month, the average of the Excess Spread Percentages for each of the three preceding Monthly Periods and (ii) for any Increase Date occurring prior to the Determination Date in any month, the average of the Excess Spread Percentages for each of the three Monthly Periods preceding the immediately prior Monthly Period. (b) Notwithstanding anything to the contrary in the Agreement, (i) no action that is subject to the Rating Agency Condition or that requires Rating Agency consent pursuant to the terms of the Agreement or this Series Supplement (regardless of whether one or more Series of Investor Certificates rated by any Rating Agency is then outstanding), shall be taken unless the Administrative Agent shall have first consented in writing to such action, which consent by the Administrative Agent shall not be unreasonably withheld, and (ii) the Administrative Agent shall receive all notices, opinions, reports, certifications and other items to be provided to each Rating Agency pursuant to the Agreement as supplemented by this Series Supplement. (c) Each capitalized term defined herein shall relate to the Series 1999-1 Certificates and no other Series of Certificates issued by the Trust, unless the context otherwise requires. All capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Agreement. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Agreement, the terms and provisions of this Supplement shall govern. (d) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Supplement shall refer to this Supplement as a whole and not to any particular provision of this Supplement; references to any Article, subsection, Section or Exhibit are references to Articles, subsections, Sections and Exhibits in or to this Supplement unless otherwise specified; and the term "including" means "including without limitation." ARTICLE III Servicing Fee Section 3.01. Servicing Compensation. The share of the Servicing Fee allocable to the Series 1999-1 Certificateholders with respect to any Distribution Date (the "Monthly Servicing Fee") shall be equal to one-twelfth of the product of (a) the Servicing Fee Rate and (b) the Average Invested Amount for the Monthly Period preceding such Distribution Date; 15 15 provided, however, that with respect to the first Distribution Date, the Monthly Servicing Fee shall equal the product of (a) a fraction, the numerator of which shall be the number of days in the period beginning on the Closing Date and ending on July 31, 1999 and the denominator of which shall be 360, (b) the Servicing Fee Rate and (c) the Average Invested Amount for the period beginning on the Closing Date and ending on July 31, 1999. ARTICLE IV Rights of Series 1999-1 Certificateholders and Allocation and Application of Collections Section 4.01. Collections and Allocations. (a) Allocations. Prior to the close of business on each Deposit Date, Collections of Finance Charge Receivables, Principal Receivables and Defaulted Receivables allocated to Series 1999-1 pursuant to Article IV of the Agreement (and, as described herein, Collections of Finance Charge Receivables reallocated from other Series) shall be allocated and distributed or reallocated as set forth in this Article IV. (b) Allocations to the Series 1999-1 Certificateholders. The Servicer shall prior to the close of business on any Deposit Date allocate, or cause the Trustee to allocate, to the Series 1999-1 Certificateholders and the Holders of the Transferor Certificates as follows: (i) Allocations of Finance Charge Collections. The Servicer shall allocate, or cause the Trustee to allocate, to the Series 1999-1 Certificateholders and retain in the Collection Account for application or reallocation as provided herein an amount equal to the product of (A) the Series 1999-1 Floating Allocation Percentage and (B) the aggregate amount of Collections of Finance Charge Receivables deposited in the Collection Account on such Deposit Date. (ii) Allocations of Principal Collections. The Servicer shall allocate to the Series 1999-1 Certificateholders, or cause the Trustee to allocate, the following amounts as set forth below: (x) Allocations During the Revolving Period. During the Revolving Period, an amount equal to the product of (I) the Series 1999-1 Floating Allocation Percentage and (II) the aggregate amount of Collections of Principal Receivables deposited in the Collection Account on such Deposit Date shall be allocated to the Series 1999-1 Certificateholders and, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, shall be retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections on the related Distribution Date, and if no other Principal Sharing Series is outstanding and in its amortization period or accumulation period, shall be paid to the Holders of the Transferor Certificates; 16 16 provided, however, that such amount to be paid to the Holders of the Transferor Certificates on any Deposit Date shall be paid to such Holders only if the Transferor Amount on such Deposit Date is greater than the Required Transferor Amount (after giving effect to all Principal Receivables transferred to the Trust on such day) and otherwise shall be deposited in the Excess Funding Account. (y) Allocations During any Limited Amortization Period. During any Limited Amortization Period, an amount equal to the product of (I) the Series 1999-1 Fixed Allocation Percentage and (II) the aggregate amount of Collections of Principal Receivables deposited in the Collection Account on such Deposit Date shall be allocated to the Series 1999-1 Certificateholders and retained in the Collection Account until applied as provided herein; provided, however, that, if the Series 1999-1 Allocable Principal Collections deposited on that and each prior Deposit Date during the then current Monthly Period exceed the difference between the Limited Amortization Amount and the total amount of principal payments paid to the Series 1999-1 Certificateholders during the related Limited Amortization Period, then such excess shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections on the related Distribution Date, and second, paid to the Holders of the Transferor Certificates only if the Transferor Amount on such Deposit Date is greater than the Required Transferor Amount (after giving effect to all Principal Receivables transferred to the Trust on such day) and otherwise shall be deposited in the Excess Funding Account. (z) Allocations During the Scheduled Amortization Period or the Early Amortization Period. During the Scheduled Amortization Period or the Early Amortization Period, an amount equal to the product of (I) the Series 1999-1 Fixed Allocation Percentage and (II) the aggregate amount of Collections of Principal Receivables deposited in the Collection Account on such Deposit Date shall be allocated to the Series 1999-1 Certificateholders and retained in the Collection Account until applied as provided herein; provided, however, that if after the date on which an amount of such Collections equal to the Invested Amount has been deposited into the Collection Account and allocated to the Series 1999-1 Certificateholders, amounts allocated to the Series 1999-1 Certificateholders pursuant to this subsection (z) shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections on the related Distribution Date, and second, paid to the Holders of the Transferor Certificates only if the Transferor Amount on such Deposit Date is greater than the Required Transferor Amount (after giving effect to all Principal Receivables transferred to the Trust on such day) and otherwise shall be deposited in the Excess Funding Account. 17 17 The withdrawals to be made from the Collection Account pursuant to this Section 4.01 do not apply to deposits into the Collection Account that do not represent Collections, including payment of the purchase price for the Certificateholders' Interest pursuant to Section 2.06 or 10.01 of the Agreement, payment of the purchase price for the Series 1999-1 Certificateholders' Interest pursuant to Section 7.01 of this Supplement and proceeds from the sale, disposition or liquidation of Receivables pursuant to Section 9.01 or 12.02 of the Agreement. Section 4.02. Determination of Monthly Interest. (a) The amount of monthly interest distributable from the Collection Account with respect to the Certificates on any Distribution Date shall be amounts equal to the amounts calculated by the Administrative Agent pursuant to the Certificate Purchase Agreement as the Monthly Interest for the related Interest Period. Notwithstanding anything to the contrary herein, the Monthly Interest shall be distributed on the Certificates only to the extent permitted by applicable law. (b) Two Business Days prior to each Distribution Date, the Servicer shall determine and notify the Trustee in writing of the excess, if any (the "Interest Shortfall"), of (x) the Monthly Interest for such Distribution Date over (y) the amount which will be available to be distributed with respect to the Certificates on such Distribution Date in respect thereof pursuant to this Supplement. If, on any Distribution Date, the Interest Shortfall is greater than zero, on each subsequent Distribution Date until such Interest Shortfall is fully paid, an additional amount ("Additional Interest") equal to (x) the actual number of days in the Interest Period commencing on such Distribution Date divided by 360, multiplied by (y) the product of (i) the Certificate Rate for such Interest Period plus 2.0% per annum and (ii) such Interest Shortfall shall be payable as provided herein with respect to the Certificates. Notwithstanding anything to the contrary herein, Additional Interest shall be distributed with respect to the Certificates only to the extent permitted by applicable law. (c) On or before the fourth Business Day preceding each Distribution Date, the Administrative Agent shall calculate the Certificate Rate and the Monthly Interest for the related Interest Period. Pursuant to the Certificate Purchase Agreement, the Administrative Agent shall provide the Servicer with written notice of the Certificate Rate and the Monthly Interest for such Interest Period on or before the fourth Business Day preceding such Distribution Date. Section 4.03. Suspension of the Revolving Period; Limited Amortization Period. The Transferor may from time to time, in its sole discretion, unless a Pay Out Event shall have occurred prior thereto, suspend the Revolving Period and cause a Limited Amortization Period to commence for one or more Monthly Periods by delivering to the Servicer, the Trustee and the Administrative Agent written notice at least two Business Days prior to the first day of the Monthly Period in which such Limited Amortization Period is scheduled to commence, which notice shall specify the aggregate amount of the decrease in the Invested Amount (the "Limited 18 18 Amortization Amount") for such Limited Amortization Period; provided, however, that any Limited Amortization Amount shall be in an amount of at least $1,000,000 or any higher multiple of $100,000; provided further that the Transferor may not cause a Limited Amortization Period to commence unless, in the reasonable belief of the Transferor, such Limited Amortization Period would not result in the occurrence of a Pay Out Event. Section 4.04. Required Amount. With respect to each Distribution Date, on the related Determination Date, the Servicer shall determine the amount (the "Required Amount"), if any, by which (x) the sum of the amounts required pursuant to subsections 4.05(a)(i), (ii) and (iii) for such Distribution Date, exceeds (y) the Series 1999-1 Allocable Finance Charge Collections for such Distribution Date. In the event that the difference between (x) the Required Amount for such Distribution Date and (y) the amount of Excess Spread and Excess Finance Charge Collections allocated to Series 1999-1 applied with respect thereto pursuant to Section 4.07(a) on such Distribution Date is greater than zero, the Servicer shall give written notice to the Trustee of such positive Required Amount on the date of computation. Section 4.05. Application of Series 1999-1 Allocable Finance Charge Collections and Available Principal Collections. The Servicer shall apply, or shall cause the Trustee to apply by written instruction to the Trustee, on each Distribution Date, Series 1999-1 Allocable Finance Charge Collections and Available Principal Collections on deposit in the Collection Account with respect to such Distribution Date to make the following distributions: (a) On each Distribution Date, an amount equal to the Series 1999-1 Allocable Finance Charge Collections will be distributed or deposited in the following priority: (i) an amount equal to Monthly Interest for such Distribution Date, plus the amount of any Monthly Interest previously due but not distributed to Certificateholders, plus the amount of any Additional Interest for such Distribution Date and any Additional Interest previously due but not distributed to Certificateholders on a prior Distribution Date, shall be distributed to the Certificateholders; (ii) an amount equal to the Investor Default Amount for such Distribution Date shall be treated as a portion of Available Principal Collections for such Distribution Date; (iii) an amount equal to the Monthly Servicing Fee for such Distribution Date plus the amount of any Monthly Servicing Fee previously due but not distributed to the Servicer on a prior Distribution Date, shall be distributed to the Servicer (unless such amount has been netted against deposits to the Collection Account in accordance with Section 4.04 of the Agreement); provided, however, that if NextCard, Inc. or an Affiliate is the Servicer and the amount of Excess Spread and Excess Finance Charge Collections allocated to Series 1999-1 with respect to the related Monthly Period would otherwise be insufficient to make the deposit to the Reserve Account required by Section 4.07(c), the amount distributed to the Servicer pursuant to this Section 4.05(a)(iii) 19 19 on such Distribution Date shall be reduced, not below zero, by an amount equal to the Reserve Account Deficiency; and (iv) the balance, if any, shall constitute Excess Spread and shall be allocated and distributed or deposited as set forth in Section 4.07. (b) On each Distribution Date with respect to the Limited Amortization Period, an amount equal to the Available Principal Collections for the related Monthly Period shall be distributed in the following order of priority: (i) an amount which, together with the aggregate amounts distributed pursuant to this clause (i) on prior Distribution Dates with respect to the same Limited Amortization Amount, equals the Limited Amortization Amount, shall be distributed to the Certificateholders; and (ii) the balance of such Available Principal Collections shall be treated as Shared Principal Collections and applied in accordance with Section 4.04 of the Agreement. (c) On each Distribution Date with respect to the Scheduled Amortization Period or the Early Amortization Period, an amount equal to the Available Principal Collections for the related Monthly Period shall be distributed in the following order of priority: (i) an amount up to the Invested Amount on such Distribution Date shall be distributed to the Certificateholders; and (ii) for each Distribution Date beginning on the Distribution Date on which the Invested Amount is paid in full, an amount equal to the balance, if any, of such Available Principal Collections shall be treated as Shared Principal Collections and applied in accordance with Section 4.04 of the Agreement. Section 4.06. Defaulted Amounts; Investor Charge-Offs. On each Determination Date, the Servicer shall calculate the Investor Default Amount, if any, for the related Distribution Date. If, on any Distribution Date, the Required Amount for the related Monthly Period exceeds the sum of (a) the amount of Excess Spread and Excess Finance Charge Collections allocable to Series 1999-1 with respect to such Monthly Period, and (b) the amount then on deposit in the Reserve Account, the Invested Amount shall be reduced by the amount by which such Required Amount exceeds such sum, but not by more than the Investor Default Amount for such Distribution Date (an "Investor Charge-Off"). Investor Charge-Offs shall thereafter be reimbursed and the Invested Amount increased (but not by an amount in excess of the aggregate unreimbursed Investor Charge-Offs) on any Distribution Date by the amount of Series 1999-1 Allocable Finance Charge Collections and Excess Spread and Excess Finance Charge Collections allocated to Series 1999-1 with respect to the related Monthly Period which are allocated and available for that purpose pursuant to Section 4.07(b). 20 20 Section 4.07. Excess Spread and Excess Finance Charge Collections. The Servicer shall apply, or shall cause the Trustee to apply by written instruction to the Trustee, on each Distribution Date, Excess Spread and Excess Finance Charge Collections allocated to Series 1999-1 with respect to the related Monthly Period, to make the following distributions or deposits in the following order of priority: (a) an amount equal to the Required Amount shall be distributed by the Trustee to fund the Required Amount in accordance with, and in the priority set forth in, subsections 4.05(a)(i), (ii) and (iii); (b) an amount equal to the aggregate amount of Investor Charge-Offs which have not been previously reimbursed shall be treated as a portion of Available Principal Collections for such Distribution Date; (c) if the amount on deposit in the Reserve Account is less than the Required Reserve Account Amount for the immediately preceding Determination Date (such difference, the "Reserve Account Deficiency"), an amount equal to such Reserve Account Deficiency shall be deposited in the Reserve Account; (d) any Additional Amounts due and payable to the Administrative Agent pursuant to the Certificate Purchase Agreement with respect to such Distribution Date shall be paid to the Administrative Agent; and (e) the balance, if any, will constitute a portion of Excess Finance Charge Collections for such Distribution Date and will be available for allocation to other Series or to the Holders of the Transferor Certificates as described in Section 4.04 of the Agreement. Section 4.08. Excess Finance Charge Collections. Series 1999-1 shall be an Excess Allocation Series. Subject to Section 4.04 of the Agreement, Excess Finance Charge Collections with respect to the Excess Allocation Series for any Distribution Date will be allocated to Series 1999-1 in an amount equal to the product of (x) the aggregate amount of Excess Finance Charge Collections with respect to all the Excess Allocation Series for such Distribution Date and (y) a fraction, the numerator of which is the Finance Charge Shortfall for Series 1999-1 for such Distribution Date and the denominator of which is the aggregate amount of Finance Charge Shortfalls for all the Excess Allocation Series for such Distribution Date. The "Finance Charge Shortfall" for Series 1999-1 for any Distribution Date will be equal to the excess, if any, of (a) the full amount required to be paid, without duplication, pursuant to subsections 4.05(a)(i)-(iii) and subsections 4.07(a) through (d) on such Distribution Date over (b) the Series 1999-1 Allocable Finance Charge Collections applied on such Distribution Date. Section 4.09. Shared Principal Collections. Subject to Section 4.04 of the Agreement, Shared Principal Collections for any Distribution Date will be allocated to Series 1999-1 in an amount equal to the product of (x) the aggregate amount of Shared Principal 21 21 Collections with respect to all Principal Sharing Series for such Distribution Date and (y) a fraction, the numerator of which is the Series 1999-1 Principal Shortfall for such Distribution Date and the denominator of which is the aggregate amount of Principal Shortfalls for all the Series which are Principal Sharing Series for such Distribution Date. The "Principal Shortfalls" for Series 1999-1 will be equal to (a) for any Distribution Date with respect to the Revolving Period, zero; (b) for any Distribution Date with respect to the Limited Amortization Period, the excess, if any, of the Limited Amortization Amount not previously distributed over the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections), and (c) for any Distribution Date with respect to the Scheduled Amortization Period or the Early Amortization Period, the excess, if any, of the Invested Amount over the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections). Section 4.10. Invested Amount Increases. (a) The Series 1999-1 Certificateholders agree, by acceptance of their Certificates, that the Transferor may, from time to time, prior to the earlier of the commencement of the Scheduled Amortization Period and the commencement of the Early Amortization Period and so long as a Limited Amortization Period is not outstanding, and subject to the terms, conditions and restrictions set forth in this Section 4.10(a) and in the Certificate Purchase Agreement, request that the Certificateholders acquire additional undivided interests in the Trust in specified amounts (each, an "Invested Amount Increase"). Each and every Invested Amount Increase shall, however, be subject to the satisfaction of the Increase Conditions, and shall be permitted only (i) during the Revolving Period and (ii) upon the request made by the Transferor to the Administrative Agent to increase the outstanding principal balance of the Certificates held by the Purchaser and the Invested Amount to an amount not to exceed the Maximum Invested Amount. Any such Invested Amount Increase shall be in a minimum amount of [*] or an integral multiple of [*] in excess of that amount. To request any such increase, the Transferor shall be required to give to each of the Trustee, the Servicer and the Administrative Agent, at least two Business Days prior to the date of the requested Invested Amount Increase, an irrevocable Invested Amount Increase Request in the form attached hereto as Exhibit E, specifying (i) the amount of such increase (the "Increase Amount"), (ii) the date on which such Invested Amount Increase is to occur, which date shall be a Business Day during the Revolving Period (an "Increase Date"), (iii) the difference between the Required Reserve Account Amount for such Increase Date after giving effect to the Increase Amount on such Increase Date and the amount then on deposit in the Reserve Account (such difference, the "Required Reserve Account Addition") and (iv) the payment instructions for remittance of the proceeds of such requested Invested Amount Increase. The proceeds of such Invested Amount Increase shall be remitted to the Transferor and the Trustee, for deposit in the Reserve Account in accordance with Section 4.11.(c), in accordance with such payment instructions. (b) On the Increase Date for such Invested Amount Increase, after satisfaction of all conditions to such Invested Amount Increase, the Purchaser shall remit such Increase Amount, to the extent it has otherwise agreed or committed to fund such Increase, no later than "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 22 22 3:00 p.m. (New York City time) in immediately available funds in accordance with the payment instructions specified in the Notice of Invested Amount Increase, and upon such remittance the outstanding principal balance of the Certificates, held by the Purchaser and the Invested Amount, shall be increased by the amount of such remittance. Concurrently with the making of such Invested Amount Increase, the Transferor and the Administrative Agent shall deliver to the Trustee a confirmation of such Invested Amount Increase, specifying the Increase Amount, and the Trustee shall promptly annotate the Certificate Register accordingly. Section 4.11. Reserve Account. (a) The Servicer, for the benefit of the Series 1999-1 Certificateholders, shall establish and maintain with the Trustee or its nominee in the name of the Trustee, on behalf of the Trust, an Eligible Account (including any subaccount thereof) bearing a designation clearly indicating that the funds and other property credited thereto are held for the benefit of the Series 1999-1 Certificateholders (the "Reserve Account"). The Reserve Account shall be under the sole dominion and control of the Trustee for the benefit of the Series 1999-1 Certificateholders. Except as expressly provided in this Supplement or the Agreement, the Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds held in the Reserve Account for any amount owed to it by the Trustee, the Trust or any Series 1999-1 Certificateholder. If, at any time, the Reserve Account ceases to be an Eligible Account, the Trustee (or the Servicer on its behalf) shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, as to which the Administrative Agent may consent) establish a new Reserve Account meeting the conditions specified above, transfer any monies, documents, instruments, securities, security entitlements, certificates of deposit and other property to such new Reserve Account and from the date such new Reserve Account is established, it shall be the "Reserve Account." The Servicer shall have the power, revocable by the Trustee, to make withdrawals and payments from the Reserve Account and to instruct the Trustee to make withdrawals and payments from the Reserve Account for the purposes of carrying out the Servicer's or the Trustee's duties hereunder. (b) On each Distribution Date, the Servicer shall direct the Trustee in writing to (i) withdraw an amount equal to the lesser of (A) the excess of (x) Required Amount for such Distribution Date over (y) the amount of Excess Spread and Excess Finance Charge Collections allocated for Series 1999-1 with respect to the related Monthly Period and (B) the amount available in the Reserve Account, from the Reserve Account, (ii) deposit such amount into the Collection Account and (iii) apply such amount in the amounts and pursuant to the priorities set forth in subsection 4.07(a). If on any Distribution Date, after giving effect to all withdrawals from and deposits to the Reserve Account, the amount on deposit in the Reserve Account would exceed the Required Reserve Account Amount, such excess shall be deposited into the Collection Account and treated as Collections of Finance Charge Receivables. (c) On each Increase Date, the Trustee shall deposit all funds remitted by the 23 23 Administrative Agent on such Increase Date that constitute the Required Reserve Account Addition for such Increase Date into the Reserve Account. (d) Funds on deposit in the Reserve Account shall at the written direction of the Servicer be invested by the Trustee or its nominee in Eligible Investments selected by the Servicer. All such Eligible Investments shall be held by the Trustee for the benefit of the Series 1999-1 Certificateholders. Investments of funds representing Collections collected during any Monthly Period shall be invested in Eligible Investments that will mature so that such funds will be available no later than the close of business on each monthly Transfer Date following such Monthly Period in amounts sufficient to the extent of such funds to make the required distributions on the following Distribution Date. No such Eligible Investment shall be disposed of prior to its maturity; provided, however, that the Trustee may sell, liquidate or dispose of any such Eligible Investment before its maturity, at the written direction of the Servicer, if such sale, liquidation or disposal would not result in a loss of all or part of the principal portion of such Eligible Investment or if, prior to the maturity of such Eligible Investment, a default occurs in the payment of principal, interest or any other amount with respect to such Eligible Investment. Unless directed by the Servicer in writing, funds deposited in the Reserve Account on a Transfer Date with respect to the immediately succeeding Distribution Date are not required to be invested overnight. Section 4.12. Interest Rate Caps. (a) The Transferor shall obtain Interest Rate Caps in favor of the Trustee for the benefit of the Trust with aggregate Notional Amounts at any time at least equal to the then-outstanding Invested Amount. Each Interest Rate Cap shall provide that (i) the Trust shall not be required to make any payments thereunder, (ii) the Interest Rate Cap shall terminate no earlier than the Distribution Date occurring in December 2002 and (iii) the Trust shall be entitled to receive Interest Rate Cap Payments (determined in accordance with the Interest Rate Cap) from the applicable Interest Rate Cap Provider on the Business Day immediately preceding each Distribution Date if the composite interest rate for "AA" commercial paper with a maturity of 30 days, as reported by the Federal Reserve Bank of New York in Federal Reserve Statistical Release H.15, for any Interest Period exceeds the Cap Rate. Each Interest Rate Cap Payment and any payments upon early termination of an Interest Rate Cap shall be deposited into the Collection Account as Series 1999-1 Allocable Finance Charge Collections. Payments received by the Trustee from an Interest Rate Cap Provider upon the early termination of an Interest Rate Cap shall be applied to the purchase of a Replacement Interest Rate Cap or Qualified Substitute Arrangement (as defined below), or if no Replacement Interest Rate Cap or Qualified Substitute Arrangement is obtained, shall be applied in accordance with Section 4.05. (b) If (i) an Interest Rate Cap Provider is a Person other than the Administrative Agent or an Affiliate of the Administrative Agent, (ii) the long-term unsecured debt rating of such Interest Rate Cap Provider is withdrawn or reduced below AA by Standard & Poor's or Aa2 by Moody's, and (iii) the short-term unsecured debt rating of such Interest Rate Cap Provider is withdrawn or reduced below A-1 by Standard & Poor's or P-1 by Moody's, then 24 24 within thirty days after such Interest Rate Cap Provider has received notice of such decline in the creditworthiness of such Interest Rate Cap Provider as determined by Standard & Poor's or Moody's, as the case may be, either (x) such Interest Rate Cap Provider, upon satisfaction of the Rating Agency Condition, will enter into an arrangement the purpose of which shall be to ensure performance by such Interest Rate Cap Provider of its obligations under the applicable Interest Rate Cap; or (y) the Servicer shall at its option take one of the following actions: (i) provided that a Replacement Interest Rate Cap or Qualified Substitute Arrangement (as described below) meeting the requirements of Section 4.12(c) has been obtained, direct the Trustee (A) to provide written notice to such Interest Rate Cap Provider of its intention to terminate the applicable Interest Rate Cap within such thirty-day period and (B) to terminate the applicable Interest Rate Cap within such thirty-day period, to request the payment to it of all amounts due to the Trust under the applicable Interest Rate Cap through the termination date and to deposit any such amounts so received, on the day of receipt, into the Collection Account, (ii) establish any other arrangement (including an arrangement or arrangements in addition to or in substitution for any prior arrangement made in accordance with the provisions of this Section 4.12(b)) which satisfies the Rating Agency Condition (a "Qualified Substitute Arrangement") or (iii) give notice to the Trustee of the occurrence of the event described in Section 6.01(l). (c) The Trustee shall not terminate an Interest Rate Cap unless, prior to the expiration of the thirty-day period referred to in said Section 4.12(b), the Transferor delivers to the Trustee (i) a Replacement Interest Rate Cap or a Qualified Substitute Arrangement, (ii) to the extent applicable, an Opinion of Counsel as to the due authorization, execution and delivery and validity and enforceability of such Replacement Interest Rate Cap or Qualified Substitute Arrangement, as the case may be, and (iii) evidence that the termination of such Interest Rate Cap and its replacement with such Replacement Interest Rate Cap or Qualified Substitute Arrangement has satisfied the Rating Agency Condition. (d) The Servicer shall notify the Trustee and the Rating Agencies within five Business Days after obtaining knowledge that the senior long-term or short-term rating of an Interest Rate Cap Provider has been withdrawn or reduced by Standard & Poor's or Moody's. (e) Notwithstanding the foregoing, the Transferor may at any time obtain a Replacement Interest Rate Cap for any Interest Rate Cap, provided that the Transferor delivers to the Trustee (i) an Opinion of Counsel as to the due authorization, execution and delivery and validity and enforceability of such Replacement Interest Rate Cap and (ii) evidence that the termination of the then current Interest Rate Cap and its replacement with such Replacement Interest Rate Cap has satisfied the Rating Agency Condition. (f) The Trustee hereby appoints the Servicer to perform the duties of the calculation agent under each Interest Rate Cap Agreement and the Servicer accepts such appointment. (g) By virtue of its acceptance of a Series 1999-1 Certificate, each Series 1999-1 Certificateholder shall be deemed to have agreed that it will have no direct right of action 25 25 against the Interest Rate Cap Providers for any failure to make any payment due under the Interest Rate Caps. (h) The Transferor shall have the option to terminate any Interest Rate Cap at any time if the Transferor obtains a Qualified Substitute Arrangement for such Interest Rate Cap. ARTICLE V Distributions and Reports to Series 1999-1 Certificateholders Section 5.01. Distributions. On each Distribution Date, the Trustee shall distribute to the Series 1999-1 Certificateholders of record on the preceding Record Date (other than as provided in Section 12.02 of the Agreement respecting a final distribution) the amounts required to be distributed thereon pursuant to Article IV hereof. Distributions to Series 1999-1 Certificateholders hereunder shall be made by wire transfer in immediately available funds. Section 5.02. Reports and Statements to Certificateholders. (a) No later than the Business Day following each Determination Date, the Servicer will provide to the Administrative Agent and the Trustee statements, substantially in the form of Exhibit B hereto (each, a "Monthly Servicer Report"), setting forth certain information relating to the Trust and the Certificates. (b) On or before January 31 of each calendar year, beginning with calendar year 2000, the Trustee shall furnish or cause to be furnished to each Person who at any time during the preceding calendar year was a Series 1999-1 Certificateholder, a statement prepared by the Servicer containing the information which is required to be contained in the statement to Series 1999-1 Certificateholders as set forth in paragraph (a) above, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 1999-1 Certificateholder, together with other information as is required to be provided by an issuer of indebtedness under the Internal Revenue Code and such other customary information as is necessary to enable the Series 1999-1 Certificateholders to prepare their tax returns. Such obligation of the Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Trustee pursuant to any requirements of the Internal Revenue Code as from time to time in effect. ARTICLE VI Pay Out Events Section 6.01. Pay Out Events. If any one of the following events shall occur with respect to the Series 1999-1 Certificates: 26 26 (a) the occurrence of an Insolvency Event relating to the Transferor, an Account Owner or the Servicer; (b) the Trust or the Transferor becomes an investment company within the meaning of the Investment Company Act; (c) the Transferor shall become unable, for any reason, to transfer Receivables to the Trust pursuant to the Agreement; (d) the Transferor or the Servicer shall fail (i) to make any payment or deposit required by the terms of the Agreement or this Supplement on or before the date occurring five Business Days after the date such payment or deposit is required to be made therein or herein or (ii) to observe or perform any other covenants or agreements of the Transferor or the Servicer set forth in the Agreement, the Certificate Purchase Agreement or this Supplement, which failure has a material adverse effect on the Certificateholders and which continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor or the Servicer, as applicable, by the Trustee, or to the Transferor or the Servicer, as applicable, and the Trustee by any Holder of the Certificates; (e) any representation or warranty made by the Transferor or the Servicer in the Agreement or this Supplement shall prove to have been incorrect in any material respect when made or when delivered and continues to be incorrect in any material respect for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor or the Servicer, as applicable, by the Trustee, or to the Transferor and the Trustee by any Holder of the Series 1999-1 Certificates and as a result of which the interests of the Certificateholders are materially and adversely affected for such period; provided, however, that a Pay Out Event pursuant to this Section 6.01(e) shall not be deemed to have occurred if the Transferor has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Agreement; (f) the average of the Portfolio Yields for any three consecutive Monthly Periods is less than the average of the Base Rates for such three consecutive Monthly Periods; (g) NextCard, Inc., the Servicer or the Transferor thereof shall be in payment default under any loan agreement such that the lender thereunder would be authorized, pursuant to the terms of such agreement, to demand immediate payment by NextCard, Inc., the Servicer or the Transferor of an amount in excess of [*] (h) if Heritage Bank of Commerce is an Account Owner, the occurrence of "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 27 27 any uncured material default under the Account Origination Agreement or the Account Origination Agreement is terminated; (i) a court of competent jurisdiction shall issue a final non-appealable order to the effect that the Trustee shall, for any reason, fail to have a valid and perfected first priority security interest in the Receivables; (j) any failure to pay to Certificateholders the full amount of interest due on the Certificates on any Distribution Date; (k) failure on the part of an Interest Rate Cap Provider to make an Interest Rate Cap Payment; (l) at any time, the Interest Rate Cap Requirement is not satisfied; (m) a failure of the Transferor to convey Receivables in Additional Accounts to the Trust within five Business Days after it is required to do so pursuant to Section 2.09(a)(i) of the Agreement; (n) any Governmental Authority having jurisdiction over the Purchaser shall prohibit the Purchaser from issuing or selling its commercial paper; (o) the Purchaser is unable to issue its commercial paper for a period of ninety consecutive days due to a suspension or material limitation in the trade of commercial paper in the United States; (p) NextCard, Inc. shall fail to own, directly or indirectly, all of the outstanding shares of capital stock of the Transferor; (q) the [*] shall not be satisfied; or (r) Three-Month Average Excess Spread is less than [*] as of any Determination Date; then, in the case of any event described in subparagraph (d), (e), (g), (j), (k), (l), (n), (o), (p) or (q) after the applicable grace period, if any, set forth in such subparagraphs, either the Trustee or the Holders of Series 1999-1 Certificates evidencing more than 50% of the aggregate unpaid principal amount of Certificates by notice then given in writing to the Transferor and the Servicer (and to the Trustee if given by the Certificateholders) may declare that a Pay Out Event has occurred with respect to Series 1999-1 as of the date of such notice, and, in the case of any event described in subparagraph (a), (b), (c), (f), (h), (i), (m) or (r) a Pay Out Event shall occur with respect to Series 1999-1 without any notice or other action on the part of the Trustee or the Series 1999-1 Certificateholders immediately upon the occurrence of such event. ARTICLE VII "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 28 28 Optional Repurchase; Series Termination Section 7.01. Optional Repurchase. (a) On any day occurring on or after the date on which the Invested Amount is reduced to 5% or less of the highest Invested Amount during the Revolving Period, at any time on or after the Closing Date, the Transferor shall have the option to purchase the Series 1999-1 Certificateholders' Interest, at a purchase price equal to (i) if such day is a Distribution Date, the Reassignment Amount for such Distribution Date or (ii) if such day is not a Distribution Date, the Reassignment Amount for the Distribution Date following such day. (b) The Transferor shall give the Servicer, the Trustee and the Administrative Agent at least 30 days prior written notice of the date on which the Transferor intends to exercise such purchase option. Not later than 2:00 p.m., New York City time, on the exercise date the Transferor shall deposit the Reassignment Amount into the Collection Account in immediately available funds. Such purchase option is subject to payment in full of the Reassignment Amount. Following the deposit of the Reassignment Amount into the Collection Amount in accordance with the foregoing, the Invested Amount for Series 1999-1 shall be reduced to zero and the Series 1999-1 Certificateholders shall have no further interest in the Receivables. The Reassignment Amount shall be distributed as set forth in Section 8.01(b). Section 7.02. Series Termination. (a) If, on the Distribution Date occurring two months prior to the Series 1999-1 Termination Date, the Invested Amount (after giving effect to all changes therein on such date) would be greater than zero, the Servicer, on behalf of the Trustee, shall, within the 40-day period which begins on such Distribution Date, solicit bids for the sale of Principal Receivables and the related Finance Charge Receivables (or interests therein) in an amount equal to the Invested Amount together with accrued and unpaid interest at the close of business on the last day of the Monthly Period preceding the Series 1999-1 Termination Date (after giving effect to all distributions required to be made on the Series 1999-1 Termination Date, except pursuant to this Section 7.02). Such bids shall require that such sale shall (subject to Section 7.02(b)) occur on the Series 1999-1 Termination Date. The Transferor shall be entitled to participate in, and to receive from the Trustee a copy of each other bid submitted in connection with, such bidding process. (b) The Servicer, on behalf of the Trustee, shall sell such Receivables (or interests therein) on the Series 1999-1 Termination Date to the bidder who made the highest cash purchase offer. The proceeds of any such sale shall be treated as Collections on the Receivables allocated to the Series 1999-1 Certificateholders pursuant to the Agreement and this Supplement; provided, however, that the Servicer shall determine conclusively the amount of such proceeds which are allocable to Finance Charge Receivables and the amount of such proceeds which are allocable to Principal Receivables. During the period from the Distribution Date occurring two 29 29 months prior to the Series 1999-1 Termination Date to the Series 1999-1 Termination Date, the Servicer shall continue to collect payments on the Receivables and allocate and deposit such Collections in accordance with the provisions of the Agreement and the Supplements. ARTICLE VIII Final Distributions Section 8.01. Sale of Receivables or Certificateholders' Interest pursuant to Section 2.06 or 10.01 of the Agreement and Section 7.01 or 7.02 of this Supplement. (a) The amount to be paid by the Transferor with respect to Series 1999-1 in connection with a reassignment of Receivables to the Transferor pursuant to Section 2.06 of the Agreement shall equal the Reassignment Amount for the first Distribution Date following the Monthly Period in which the reassignment obligation arises under the Agreement. (b) The amount to be paid by the Transferor with respect to Series 1999-1 in connection with a repurchase of the Certificateholders' Interest pursuant to Section 10.01 of the Agreement shall equal the Reassignment Amount for the Distribution Date of such repurchase. (c) With respect to the Reassignment Amount deposited into the Collection Account pursuant to Section 7.01 or any amounts allocable to the Series 1999-1 Certificateholders' Interest deposited into the Collection Account pursuant to Section 7.02, the Trustee shall, in accordance with the written direction of the Servicer, not later than 12:00 noon, New York City time, on the related Distribution Date, make deposits or distributions of the following amounts (in the priority set forth below and, in each case after giving effect to any deposits and distributions otherwise be made on such date) in immediately available funds: (x) the Invested Amount on such Distribution Date will be distributed to the Paying Agent for payment to the Certificateholders and (y) an amount equal to the sum of (A) Monthly Interest for such Distribution Date and (B) any Monthly Interest previously due but not distributed to the Certificateholders on a prior Distribution Date will be distributed to the Paying Agent for payment to the Certificateholders. (d) Notwithstanding anything to the contrary in this Supplement or the Agreement, all amounts distributed to the Paying Agent pursuant to Section 8.01(c) for payment to the Series 1999-1 Certificateholders shall be deemed distributed in full to the Series 1999-1 Certificateholders on the date on which such funds are distributed to the Paying Agent pursuant to this Section and shall be deemed to be a final distribution pursuant to Section 12.02 of the Agreement. ARTICLE IX Miscellaneous Provisions 30 30 Section 9.01. Ratification of Agreement. As supplemented by this Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. Section 9.02. Counterparts. This Supplement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. Section 9.03. Governing Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 9.04. Private Placement of Series 1999-1 Certificates; Form of Delivery of Series 1999-1 Certificates. (a) The Series 1999-1 Certificates have not been registered under the Securities Act of 1933, as amended, (the "Securities Act"), or any state securities law. No transfer of any Series 1999-1 Certificate shall be made except to the Purchaser or in accordance with the terms of the Certificate Purchase Agreement and either (i) pursuant to an effective registration under the Securities Act and applicable state securities or "blue sky" laws or (ii) in a transaction exempt from the registration requirements of the Securities Act and applicable state securities or "blue sky" laws, to (A) a person who the transferor reasonably believes is a Qualified Institutional Buyer within the meaning thereof in Rule 144A under the Securities Act that is aware that the resale or other transfer is being made in reliance on Rule 144A, (2) a person who is an accredited investor as defined in Rule 501(a) under the Securities Act or (3) an institution which has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment therein. The Series 1999-1 Certificates shall bear legends to the effect set forth in Exhibit A. The Transferor is not obligated to register the Series 1999-1 Certificates under the Securities Act or any other securities or "blue sky" law or to take any other action not otherwise required under this Supplement or the Agreement to permit the transfer of Series 1999-1 Certificates without registration or as described above. (b) The Series 1999-1 Certificates shall be delivered as Registered Certificates as provided in Section 6.01. Section 9.05. Successors and Assigns. This Supplement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns, except that the Transferor may not assign or transfer any of its rights under this Supplement without the prior written consent of the Administrative Agent and without prior notice to each Rating Agency. 31 31 Section 9.06. Amendments. In addition to the conditions to the amendment of the Agreement and this Supplement set forth in the Agreement, neither the Agreement nor this Supplement may be amended without the prior written consent of the Administrative Agent; provided, however, that, the Agreement may be amended without the prior written consent of the Administrative Agent if, not less than five Business Days prior to the effectiveness of any such amendment, there shall have been delivered to the Administrative Agent (i) an Opinion of Counsel addressed to the Administrative Agent that any such amendment shall not adversely affect in any material respect the interests of the Series 1999-1 Certificateholders and (ii) a copy of such amendment. Section 9.07. Amendments to Agreement. (a) For the term of this Supplement, the definition of "Eligible Account" is hereby amended with the addition of the following condition: (i) The Obligor of which had a FICO score as of the date of the approval of the origination of the Account of at least [*]. (b) For the terms of this Supplement, Section 2.09(c) of the Agreement is hereby amended with the addition of the following condition (ix): (ix) after giving effect to the Additional Accounts, no more than [*] of the Accounts (calculated on the basis of the amount of outstanding Principal Receivables relating to the Accounts on the dates they became Accounts) shall have related Obligors with FICO Scores as of the date of origination of their Accounts of less than [*]. (c) For the terms of this Supplement, Section 3.03 of the Agreement is hereby amended with the addition of the following paragraph (l): (l) Year 2000 Readiness. The Servicer has reviewed the areas within its business and operations that could reasonably be expected to be adversely affected by the risk that computer applications used by it (or by its suppliers and vendors) to process any data related to this Agreement may produce materially adverse consequences in performing date-sensitive functions subsequent to any date after December 31, 1999 (such risk being referred to herein as the "Year 2000 Problem"). The Servicer is taking or causing to be taken reasonable measures to address the Year 2000 Problem on a timely basis. To the best of the Servicer's knowledge, the Year 2000 Problem will not materially and adversely affect the Servicer's ability to perform its obligations under this Agreement. Section 9.08. Tax Matters. (a) Notwithstanding anything to the contrary herein, each of the Paying "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 32 32 Agent, Servicer or Trustee shall be entitled to withhold any amount that it reasonably determines in its sole discretion is required to be withheld pursuant to Section 1446 of the Code and such amount shall be deemed to have been paid for all purposes of the Agreement. (b) Each of the Series 1999-1 Certificateholders agrees that prior to the date on which the first interest payment hereunder is due thereto, it will provide to the Servicer and the Trustee (i) if such Series 1999-1 Certificateholder is incorporated or organized under the laws of a jurisdiction outside the United States, two duly completed copies of the United States Internal Revenue Service Form 4224 or successor applicable or required forms, (ii) if the Transferor so requests, a duly completed copy of United States Internal Revenue Service Form W-9 or successor applicable or required forms, and (iii) such other forms and information as the Transferor may reasonably request to confirm the availability of any applicable exemption from United States federal, state or local withholding taxes. Each Series 1999-1 Certificateholder agrees to provide to the Servicer and Trustee, like additional subsequent duly completed forms satisfactory to the Servicer and Trustee on or before the date that any such form expires or becomes obsolete, or upon the occurrence of any event requiring an amendment, resubmission or change in the most recent form previously delivered by it, and to provide such extensions or renewals as may be reasonably requested by the Servicer or Trustee. Each Series 1999-1 Certificateholder certifies, represents and warrants that as of the date of this Agreement, or in the case of a Series 1999-1 Certificateholder which is an assignee as of the date of such Certificate Assignment, that (i) it is entitled (x) to receive payments under this Agreement without deduction or withholding of any United States federal income taxes (other than taxes required to be withheld pursuant to Section 1446 of the Code) and (y) to an exemption from United States backup withholding tax and (ii) it will pay any taxes attributable to its ownership of an interest in the Certificates. (c) Each Series 1999-1 Certificateholder agrees with the Transferor that: (a) such Series 1999-1 Certificateholder will deliver to the Transferor on or before the Closing Date or the effective date of any participation or Certificate Assignment an Investment Letter, executed by such assignee Series 1999-1 Certificateholder, in the case of a Certificate Assignment, or by the Participant, in the case of a participation, with respect to the purchase by such Series 1999-1 Certificateholder or Participant of a portion of an interest relating to the Investor Certificate and (b) all of the statements made by such Series 1999-1 Certificateholder in its Investment Letter shall be true and correct as of the date made. (d) Each Series 1999-1 Certificateholder, by its holding of an interest in the Investor Certificates, hereby severally represents, warrants and covenants, and each Series 1999-1 Certificateholder that acquires an interest in the Investor Certificates by Certificate Assignment shall be deemed to have severally represented, warranted and covenanted upon such Certificate Assignment that: (i) such Series 1999-1 Certificateholder has not acquired and shall not sell, trade or transfer any interest in the Investor Certificates, nor cause any interest in the Investor Certificates to be marketed, on or through either (A) an "established securities market" within the meaning of Section 7704(b)(1) of the Code (including an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic 33 33 means or otherwise) or (B) a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704(b)(2) of the Code (including a market wherein interests in the Investor Certificates are regularly quoted by any person making a market in such interests and a market wherein any person regularly makes available bid or offer quotes with respect to interests in the Investor Certificates and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others), and (ii) unless the Transferor consents otherwise, such Series 1999-1 Certificateholder (A) is properly classified as, and shall remain classified as, a "corporation" as described in Section 7701(a)(3) of the Code and (B) is not, and shall not become, an "S corporation" as described in Section 1361 of the Code. In the event of any breach of the representation, warranty and covenant of an Series 1999-1 Certificateholder or its Participant that such Series 1999-1 Certificateholder or participant shall remain classified as a corporation other than an S corporation, such Series 1999-1 Certificateholder shall notify the Transferor promptly upon such Series 1999-1 Certificateholder's becoming aware of such breach, and thereupon the Series 1999-1 Certificateholder hereby agrees to use reasonable efforts to procure a replacement investor which is acceptable to the Transferor not so affected to replace such affected Series 1999-1 Certificateholder. In any such event, the Transferor shall also have the right to procure a replacement investor. Each affected Series 1999-1 Certificateholder hereby agrees to take all actions necessary to permit a replacement investor to succeed to its rights and obligations hereunder. Each Series 1999-1 Certificateholder which has a Participant which has breached its representation, warranty and covenant that it shall remain classified as a corporation other than an S corporation hereby agrees (without limiting the right of the Transferor to procure a replacement investor for such Series 1999-1 Certificateholder as provided above in this paragraph) to notify the Transferor of such breach promptly upon such Series 1999-1 Certificateholder's becoming aware thereof and to use reasonable efforts to procure a replacement Participant, as applicable, not so affected which is acceptable to the Transferor to replace any such Participant. (e) Subject to the provisions of subsection 9.04(a), each Series 1999-1 Certificateholder may at any time sell, assign or otherwise transfer, to the extent of such Series 1999-1 Certificateholder's interest in the Investor Certificates (each, a "Certificate Assignment"), to (i) the Administrative Agent or the Purchaser or (ii) any other Person to which the Transferor may consent, which consent shall not be unreasonably withheld (it being understood that such consent shall be considered to be withheld reasonably on the basis that following such proposed Certificate Assignment the number of Private Holders would exceed 80 or otherwise cause the Trust to be in jeopardy of being treated as taxable as a publicly traded partnership pursuant to Section 7704 of the Code) (upon such Certificate Assignment, a "Series 1999-1 Certificateholder") all or part of its interest in the Investor Certificates; provided, however, that any Certificate Assignment shall be void unless (i) the minimum amount of such Certificate Assignment shall be $5,000,000, (ii) such assignee Series 1999-1 Certificateholder shall comply with this Section 9.08 and shall have delivered to the Trustee, prior to the effectiveness of such Certificate Assignment, a copy of an agreement under which such assignee Series 1999-1 Certificateholder has made the representations, warranties and covenants required to be made pursuant to this Section 9.08, (iii) there shall not be, in the aggregate, more than [*] "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 34 34 Certificateholders and Partial Participants after giving effect to such Assignment, and (iv) such proposed assignee shall provide the forms described in (i), (ii) and (iii) of subsection 9.08(b) (subject to the Transferor's consent, as applicable and as set forth therein) in the manner described therein. In connection with any Certificate Assignment to a Person other than the Administrative Agent or the Purchaser, the assignor Series 1999-1 Certificateholder shall request in writing to the Trustee (who shall promptly deliver it to the Transferor) for the consent of the Transferor (the Transferor shall respond to any such request within ten Business Days after its receipt and the Transferor will not unreasonably withhold such consent) it being understood that the obtaining of such consent is a condition to the effectiveness of such a Certificate Assignment. Each assignee Series 1999-1 Certificateholder is subject to the terms and conditions of subsection 9.08(b) on an ongoing basis and hereby makes the certifications, representations and warranties contained therein, and the assigning Series 1999-1 Certificateholder hereby certifies, represents and warrants that its assignee's certifications, representations and warranties thereunder are true. (f) Subject to the provisions of subsection 9.04(a), any Series 1999-1 Certificateholder may at any time grant a participation in all or part (but not less than $5,000,000) of its interest in Investor Certificates to (i) the Administrative Agent or the Purchaser or (ii) any other Person to which the Transferor may consent, which consent shall not be unreasonably withheld (it being understood that such consent shall be considered to be withheld reasonably on the basis that following such proposed participation the number of Private Holders would exceed 80 or otherwise cause the Trust to be in jeopardy of being treated as taxable as a publicly traded partnership pursuant to Section 7704 of the Code) (the Administrative Agent, the Purchaser and each such other Person, a "Participant" and each Participant acquiring a participation in less than all of a Certificateholder's rights with respect to payments due thereunder, a "Partial Participant"); provided, however, that such participation shall be void, unless (i) such Participant complies with the applicable provisions of this Section 9.08, (ii) there shall not be, in the aggregate, more than [*] Certificateholders and Partial Participants after giving effect to such participation, and (iii) such Series 1999-1 Certificateholder delivers to the Trustee, prior to the effectiveness of its participation, a copy of an agreement under which such Participant has made the representations, warranties and covenants required to be made pursuant to this Section. In connection with the granting of any such participation to any Person other than to the Administrative Agent or the Purchaser, the granting Series 1999-1 Certificateholder shall provide a written request to the Trustee (who shall promptly deliver it to the Transferor) for the consent of the Transferor to the granting of the specified interest to any identified prospective Participant, the Transferor shall respond to any such request within ten Business Days after its receipt, it being understood that the obtaining of such consent is a condition to the effectiveness of such a participation. Each Series 1999-1 Certificateholder hereby acknowledges and agrees that any such participation will not alter or affect in any way whatsoever such Series 1999-1 Certificateholder's direct obligations hereunder and that the Transferor shall have no obligation to have any communication or relationship whatsoever with any Participant of such Series 1999-1 Certificateholder in order to enforce the obligations of such Series 1999-1 Certificateholder hereunder. Each Series 1999-1 "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 35 35 Certificateholder shall promptly notify the Trustee (which shall promptly notify the Transferor) in writing of the identity and interest of each Participant upon any such disposition. In granting any participation, the Series 1999-1 Certificateholder certifies, represents and warrants that (i) such Participant is entitled to (x) receive payments with respect to its participation without deduction or withholding of any United States federal income taxes and (y) an exemption from United States backup withholding tax, (ii) prior to the date on which the first interest payment is due to the Participant, such Series 1999-1 Certificateholder will provide to the Servicer and Trustee, the forms described in (i), (ii) and (iii) of subsection 9.08(b) (subject to the Transferor's consent, as applicable and as set forth therein) as though the Participant were a Series 1999-1 Certificateholder, and (iii) such Series 1999-1 Certificateholder similarly will provide subsequent forms as described in subsection 9.08(b) with respect to such Participant as though it were a Series 1999-1 Certificateholder. (g) Any holder of an interest in the Trust acquired pursuant to Section 12.01(b) of the Agreement in respect of the Series 1999-1 Certificates shall be required to represent and covenant in connection with such acquisition that (x) it has neither acquired, nor will it sell, trade or transfer any interest in the Trust or cause any interest in the Trust to be marketed on or through either (i) an "established securities market" within the meaning of Code section 7704(b)(1), including without limitation an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise or (ii) a "secondary market (or the substantial equivalent thereof)" within the meaning of Code section 7704(b)(2), including a market wherein interests in the Trust are regularly quoted by any person making a market in such interests and a market wherein any person regularly makes available to the public bid or offer quotes with respect to interests in the Trust and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others, (y) unless the Transferor consents otherwise (which consent shall be based on an Opinion of Counsel generally to the effect that the action taken pursuant to the consent will not cause the Trust to become a publicly traded partnership treated as a corporation), such holder (i) is properly classified as, and will remain classified as, a "corporation" as described in Code section 7701(a)(3) and (ii) is not, and will not become, an S corporation as described in Code section 1361, and (z) it will (i) cause any participant with respect to such interest otherwise permitted hereunder to make similar representations and covenants for the benefit of the Transferor and the Trust and (ii) forward a copy of such representations and covenants to the Trustee. Each such holder shall further agree in connection with its acquisition of such interest that, in the event of any breach of its (or its participant's) representation and covenant that it (or its participant) is and shall remain classified as a corporation other than an S corporation, the Transferor shall have the right to procure a replacement investor to replace such holder (or its participant), and further that such holder shall take all actions necessary to permit such replacement investor to succeed to its rights and obligations as a holder (or to the rights of its participant). [Signature Page to Follow] 36 36 IN WITNESS WHEREOF, the undersigned have caused this Supplement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. NEXTCARD FUNDING CORP., as Transferor By: /s/ Robert Linderman ----------------------------- Name: Robert Linderman Title: General Counsel and Secretary NEXTCARD, INC., as Servicer By: /s/ Robert Linderman ----------------------------- Name: Robert Linderman Title: General Counsel and Secretary THE BANK OF NEW YORK, as Trustee By: /s/ Kimberly Gilfoil ----------------------------- Name: Kimberly Gilfoil Title: Assistant Treasurer EX-10.3 4 SERIES 1999-2 SUPPLEMENT, DATED AS OF MAY 21, 1999 1 TABLE OF CONTENTS
PAGE ARTICLE I Creation of the Series 1999-2 Certificates................................1 Section 1.01. Designation........................................................1 ARTICLE II Definitions...............................................................2 Section 2.01. Definitions........................................................2 ARTICLE III Servicing Fee............................................................11 Section 3.01. Servicing Compensation............................................11 ARTICLE IV Rights of Series 1999-2 Certificateholders and Allocation and Application of Collections...............................................12 Section 4.01. Collections and Allocations.......................................12 Section 4.02. Determination of Monthly Interest.................................14 Section 4.03. Suspension of the Revolving Period; Limited Amortization Period............................................................14 Section 4.04. Required Amount...................................................14 Section 4.05. Application of Series 1999-2 Allocable Finance Charge Collections and Available Principal Collections...................15 Section 4.06. Defaulted Amounts; Investor Charge-Offs...........................16 Section 4.07. Excess Spread and Excess Finance Charge Collections...............16 Section 4.08. Excess Finance Charge Collections.................................17 Section 4.09. Shared Principal Collections......................................17 Section 4.10. Invested Amount Increases.........................................17 Section 4.11. Reserve Account...................................................18 Section 4.12. Interest Rate Cap.................................................19
2 2 TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE V Distributions and Reports to Series 1999-2 Certificateholders............21 Section 5.01. Distributions.....................................................21 Section 5.02. Reports and Statements to Certificateholders......................21 ARTICLE VI Pay Out Events...........................................................22 Section 6.01. Pay Out Events....................................................22 ARTICLE VII Optional Repurchase; Series Termination..................................23 Section 7.01. Optional Repurchase...............................................23 Section 7.02. Series Termination................................................24 ARTICLE VIII Final Distributions......................................................25 Section 8.01. Sale of Receivables or Certificateholders' Interest pursuant to Section 2.06 or 10.01 of the Agreement and Section 7.01 or 7.02 of this Supplement........................................25 ARTICLE IX Miscellaneous Provisions.................................................25 Section 9.01. Ratification of Agreement.........................................25 Section 9.02. Counterparts......................................................25 Section 9.03. Governing Law.....................................................26 Section 9.04. Private Placement of Series 1999-2 Certificates; Form of Delivery of Series 1999-2 Certificates............................26 Section 9.05. Successors and Assigns............................................26 Section 9.06. Amendments........................................................26
3 3 TABLE OF CONTENTS (CONTINUED)
PAGE Section 9.07. Amendments to Agreement...........................................27 Section 9.08. Tax Matters.......................................................27
4 4 SERIES 1999-2 SUPPLEMENT, dated as of May 21, 1999 (the "Supplement"), among NEXTCARD FUNDING CORP., a Delaware corporation, as Transferor, NEXTCARD, INC., a California corporation, as Servicer, and THE BANK OF NEW YORK, a New York banking corporation, as Trustee. Pursuant to the Pooling and Servicing Agreement, dated as of December 1, 1998, as amended and restated by the Amended and Restated Pooling and Servicing Agreement, dated as of May 21, 1999 (as amended, restated and supplemented, the "Agreement"), among the Transferor, the Servicer and the Trustee, the Transferor has created the NextCard Master Trust I (the "Trust"). Section 6.03 of the Agreement provides that the Transferor may from time to time direct the Trustee to authenticate one or more new Series of Investor Certificates representing fractional undivided interests in the Trust. The Principal Terms of any new Series are to be set forth in a Supplement to the Agreement. Pursuant to this Supplement, the Transferor and the Trustee shall create a new Series of Investor Certificates and specify the Principal Terms thereof. ARTICLE I Creation of the Series 1999-2 Certificates .1. Designation. (a) There is hereby created a Series of Investor Certificates to be issued pursuant to the Agreement and this Supplement to be known as "NextCard Master Trust I, Series 1999-2." The Series 1999-2 Certificates shall be known as the "Series 1999-2 Variable Funding Certificates." (b) Series 1999-2 shall be a Principal Sharing Series. Series 1999-2 shall be an Excess Allocation Series. Series 1999-2 shall not be subordinated to any other Series. Notwithstanding any provision in the Agreement or in this Supplement to the contrary, the first Distribution Date with respect to Series 1999-2 shall be the July 15, 1999 Distribution Date and the first Monthly Period shall begin on and include May 21, 1999 and end on and include June 30, 1999. The Closing Date shall be a Discount Option Date and the Discount Percentage shall be [*] or such other percentage as shall be mutually acceptable to the Transferor and the Administrative Agent, which Discount Percentage shall apply to all Principal Receivables (without giving effect to the proviso in the definition of Principal Receivables) arising on or after the Closing Date. Notwithstanding anything to the contrary in the Agreement, the Transferor shall not reduce or withdraw such Discount Percentage or otherwise modify the application thereof unless the Rating Agency Condition shall have been satisfied with respect to such action. ARTICLE II Definitions "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 5 5 .1. Definitions. (a) Whenever used in this Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and the masculine as well as the feminine and neuter genders of such terms. "Account Origination Agreement" shall mean the Amended and Restated Account Origination Agreement by and between the Servicer, the Transferor and Heritage Bank of Commerce dated as of May 21, 1999, as amended from time to time in accordance with the terms thereof. "Additional Amounts" shall have the meaning specified in the Certificate Purchase Agreement. "Additional Interest" shall have the meaning specified in Section 4.02(b). "Administrative Agent" shall mean Barclays Bank PLC, in its capacity as agent under the Certificate Purchase Agreement, and any successor thereto appointed pursuant to the Certificate Purchase Agreement. "Amortization Period" shall mean, with respect to Series 1999-2, as the context requires, the Scheduled Amortization Period, the Early Amortization Period or any Limited Amortization Period. "Available Principal Collections" shall mean, with respect to any Monthly Period, an amount equal to the sum of (a) the Series 1999-2 Allocable Principal Collections received during such Monthly Period, (b) any Shared Principal Collections with respect to other Series that are allocated to Series 1999-2 in accordance with Section 4.04 of the Agreement and Section 4.09 hereof and (c) any other amounts which pursuant to Section 4.05, 4.07 or 4.11 hereof are to be treated as Available Principal Collections with respect to the related Distribution Date. "Average Invested Amount" shall mean, for any period, the sum of the Invested Amounts for each day in such period divided by the number of days in such period. "Bank" shall mean Heritage Bank of Commerce. "Base Rate" shall mean, with respect to any Monthly Period, the annualized percentage equivalent of a fraction, (a) the numerator of which is the sum of the Monthly Interest and the Monthly Servicing Fee for such Monthly Period and (b) the denominator of which is the Average Invested Amount as of the last day of such Monthly Period. "Cap Rate" shall mean [*] per annum. "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 6 6 "Certificate Assignment" shall have the meaning specified in Section 9.08(e). "Certificate Purchase Agreement" shall mean the Certificate Purchase Agreement, dated as of May 21, 1999, among the Transferor, the Servicer, the Administrative Agent and the Purchaser, and all amendments thereto. "Certificate Rate" shall have the meaning specified in the Certificate Purchase Agreement. "Certificateholder" shall mean the Person in whose name a Certificate is registered in the Certificate Register. On the Closing Date, the Administrative Agent shall be the Certificateholder on behalf of the Purchaser. "Certificates" shall mean any one of the Series 1999-2 Variable Funding Certificates executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A. "Closing Date" shall mean May 21, 1999. "Credit Bureau Agency" shall mean any of Trans Union LLC, Experian Inc. or Equifax Inc., or any of their respective successors. "Distribution Date" shall mean July 15, 1999, and the fifteenth day of each calendar month thereafter, or if such fifteenth day is not a Business Day, the next succeeding Business Day. "Early Amortization Period" shall mean the period commencing at the close of business on the Business Day immediately preceding the day on which a Pay Out Event with respect to Series 1999-2 is deemed to have occurred, and ending on the first to occur of (i) the payment in full of the Invested Amount and (ii) the Series 1999-2 Termination Date. "Excess Spread" shall mean, with respect to any Distribution Date, the sum of the amounts, if any, specified pursuant to subsections 4.05(a)(iv). "Excess Spread Percentage" shall mean, for any Monthly Period, the difference between the Portfolio Yield and the Base Rate for such Monthly Period. "FICO Score" shall mean , with respect to any Obligor, the average of any two of the risk scores indicated on such Obligor's credit reports, as calculated by the applicable Credit Bureau Agency using software developed by Fair, Isaac and Co., Inc. "FICO Scoring Date" [*] "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 7 7 [*]. "Finance Charge Shortfall" shall have the meaning specified in Section 4.08. "Increase Amount" shall have the meaning specified in Section 4.10(a). "Increase Conditions" shall mean, with respect to any requested Invested Amount Increase hereunder, all of the following: (a) the request with respect to such Invested Amount Increase shall have been delivered to the Trustee, the Administrative Agent and the Servicer by the time, and shall otherwise conform to the requirements, specified in Section 4.10(a); (b) after giving effect to such Invested Amount Increase, the Invested Amount shall not exceed the Maximum Invested Amount; (c) no Pay Out Event or event that, after the giving of notice or the lapse of time, would constitute a Pay Out Event, has occurred and is continuing or would result from such Invested Amount Increase; (d) the Scheduled Amortization Period shall not have commenced as of such Increase Date; (e) all of the representations and warranties of the Transferor and the Servicer set forth in the Agreement shall be true and correct as though made on and as of such Increase Date (except that representations and warranties set forth in Sections 2.04(a)(ii), (vii), (viii) and (ix) shall be deemed to be made only as of the applicable date specified in such sections); (f) after giving effect to such Invested Amount Increase, the Transferor Percentage shall be equal to or greater than the Required Transferor Percentage on such date; (g) the Servicer shall have delivered to the Administrative Agent a copy of the Servicer Report prepared as of the immediately prior Determination Date, signed by a Servicing Officer; (h) the Interest Rate Cap Requirement is satisfied on such date; (i) as of the most recent Distribution Date preceding the applicable Increase Date, no unreimbursed Investor Charge-Offs remain outstanding; "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 8 8 (j) the amount on deposit in the Reserve Account shall equal the Required Reserve Account Amount on such Increase Date after giving effect to the Invested Amount Increase and the Required Reserve Account Addition made on such Increase Date; and (k) the Transferor shall have delivered to the Trustee, the Administrative Agent and the Servicer an Officer's Certificate dated as of such Increase Date certifying that the conditions described in paragraphs (a) through (j) above have been satisfied. "Increase Date" shall have the meaning specified in Section 4.10(a). "Initial Invested Amount" shall mean $95,129,084.82. "Interest Period" shall mean, with respect to any Distribution Date, the period from and including the Distribution Date immediately preceding such Distribution Date (or, in the case of the first Distribution Date, from and including the Closing Date) to but excluding such Distribution Date. "Interest Rate Cap" shall mean the interest rate cap agreement for the benefit of the Trust dated the Closing Date between the Trustee, acting on behalf of the Trust, and the Interest Rate Cap Provider, substantially in the form of Exhibit D, having a notional amount equal to the Notional Amount and a cap rate equal to the Cap Rate, or any Replacement Interest Rate Cap or Qualified Substitute Arrangement with respect thereto. "Interest Rate Cap Payment" shall mean, with respect to any Distribution Date, any payment required to be made on the preceding Business Day by the Interest Rate Cap Provider to the Trustee for deposit in the Collection Account as Series 1999-2 Allocable Finance Charge Collections. "Interest Rate Cap Provider" shall mean Barclays Bank PLC (London Head Office), in its capacity as obligor under the Interest Rate Cap, or if any Replacement Interest Rate Cap or Qualified Substitute Arrangement is obtained pursuant to Section 4.12, any obligor with respect to such Replacement Interest Rate Cap or Qualified Substitute Arrangement. "Interest Rate Cap Requirement" shall mean as of any date of determination, that (i) the Trust shall have the benefits of the Interest Rate Cap, a Replacement Interest Rate Cap or Qualified Substitute Arrangement satisfying the requirements of Section 4.12 and (ii) the long-term unsecured debt ratings of the Interest Rate Cap Provider shall be at least AA by Standard & Poor's and Aa2 by Moody's or the short-term unsecured debt ratings of the Interest Rate Cap Provider shall be at least A-1+ by Standard & Poor's and P-1 by Moody's unless Barclays Bank PLC (London Head Office) is the Interest Rate Cap Provider, in which case no rating requirement will apply. "Interest Shortfall" shall have the meaning specified in Section 4.02(b). 9 9 "Invested Amount" shall mean, on any date of determination, an amount equal to (a) the Initial Invested Amount, plus (b) the aggregate principal amount of Invested Amount Increases pursuant to Section 4.10 on or prior to such date, minus (c) the aggregate amount of principal payments made to the Certificateholders on or prior to such date, minus (d) the excess, if any, of the aggregate amount of Investor Charge-Offs for all prior Distribution Dates over Investor Charge-Offs reimbursed pursuant to Section 4.07(b) prior to such date. "Invested Amount Increase" shall have the meaning specified in Section 4.10(a). "Investment Letter" shall mean an Investment Letter substantially in the form of Exhibit C executed by a Certificateholder. "Investor Charge-Offs" shall have the meaning specified in Section 4.06. "Investor Default Amount" shall mean, with respect to any Monthly Period, an amount equal to the product of (a) the Defaulted Amount for the related Monthly Period and (b) the Series 1999-2 Floating Allocation Percentage for such Monthly Period. "Limited Amortization Amount" shall have the meaning specified in Section 4.03. "Limited Amortization Period" shall mean, unless the Scheduled Amortization Period or the Early Amortization Period shall have commenced prior thereto, a period beginning on the first day of the Monthly Period specified in the notice delivered by the Transferor in accordance with Section 4.03, and ending upon the first to occur of (i) the commencement of the Scheduled Amortization Period or the Early Amortization Period and (ii) the last day of the Monthly Period related to the Distribution Date on which the applicable Limited Amortization Amount shall have been paid in full. "Liquidity Reduction Date" shall have the meaning specified in the Certificate Purchase Agreement. "Maximum Invested Amount" shall mean $300,000,000, as such amount may be increased or decreased from time to time in accordance with the Certificate Purchase Agreement. "Monthly Interest" shall have the meaning specified in the Certificate Purchase Agreement. "Monthly Servicer Report" shall have the meaning specified in Section 5.02. "Monthly Servicing Fee" shall have the meaning specified in Section 3.01. "Notional Amount" shall mean the notional amount of the Interest Rate Cap, which shall be, with respect to the period from the Closing Date until the close of business on May 20, 2001 an amount equal to the Maximum Invested Amount and commencing May 21, 2001 shall be zero. 10 10 "Official Body" shall mean any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality thereof, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Partial Participant" shall have the meaning specified in Section 9.08(f). "Participant" shall have the meaning specified in Section 9.08(f). "Pay Out Event" shall mean any Pay Out Event specified in Section 6.01. "Permitted Assignee" shall have the meaning specified in the Certificate Purchase Agreement. "Portfolio Yield" shall mean, with respect to any Monthly Period, the annualized percentage equivalent of a fraction, (a) the numerator of which is equal to (i) the amount of Series 1999-2 Allocable Finance Charge Collections with respect to such Monthly Period minus (ii) the Investor Default Amount for such Monthly Period and (b) the denominator of which is the Average Invested Amount for such Monthly Period. "Principal Payment Rate" shall mean, for any Monthly Period, the percentage equivalent of a fraction, the numerator of which is the aggregate amount of Collections of Principal Receivables during such Monthly Period and the denominator of which is the aggregate amount of Principal Receivables outstanding as of the first day of such Monthly Period. "Private Holder" shall mean each holder of a right to receive interest or principal in respect of any direct or indirect interest in the Trust including any financial instrument or contract the value of which is determined in whole or part by reference to the Trust (including the Trust's assets, income of the Trust or distributions made by the Trust), excluding any interest in the Trust represented by any Series or Class of Certificates or any other interest as to which the Transferor has provided to the Trustee an Opinion of Counsel to the effect that such Series, Class or other interest will be treated as debt or otherwise not as an equity interest in either the Trust or the Receivables for federal income tax purposes, in each case, provided such interest is not convertible or exchangeable into an interest in the Trust or the Trust's income or equivalent value. Notwithstanding the immediately preceding sentence, "Private Holder" shall also include any other Person that the Transferor determines is (or may be) a "partner" within the meaning of Section 1.7704-1(h)(1)(ii) of the United States Treasury Regulations (including by reason of Section 1.7704-1(h)(3)). Private Holders include the holders of the Transferor Certificate or any interest therein, the interest of the Servicer, and any interest described in Section 12.02(c) of the Agreement. Any Person holding more than one interest in the Trust each of which separately would cause such Person to be a Private Holder shall be treated as a single Private Holder. Each holder of an interest in a Private Holder which is a partnership, S corporation or a grantor trust under the Code shall be treated as a Private Holder unless excepted with the consent of the Transferor. 11 11 "Purchaser" shall mean Sheffield Receivables Corporation, a Delaware corporation, together with its successors and permitted assigns. "Qualified Substitute Arrangement" shall have the meaning specified in Section 4.12(b). "Reassignment Amount" shall mean, with respect to any Distribution Date, after giving effect to any deposits and distributions otherwise to be made on such Distribution Date, the sum of (i) the Invested Amount on such Distribution Date, plus (ii) Monthly Interest for such Distribution Date and any Monthly Interest previously due but not distributed to the Series 1999-2 Certificateholders, plus (iii) the amount of any Additional Interest, if any, for such Distribution Date and any Additional Interest previously due but not distributed to the Certificateholders on a prior Distribution Date. "Replacement Interest Rate Cap" shall mean any interest rate cap having the same terms and conditions as the interest rate agreement set forth in Exhibit D, in the case of a replacement to the Interest Rate Cap, and otherwise satisfying the conditions set forth in Section 4.12. "Required Amount" shall have the meaning specified in Section 4.04. "Required Excess Spread Reserve Account Percentage" shall mean, with respect to any Determination Date or Increase Date, the percentage in the right-hand column below corresponding to the applicable Three-Month Average Excess Spread Percentage set forth in the left-hand column below:
Three-Month Average Required Excess Spread Excess Spread Percentage Reserve Account Percentage ------------------------ -------------------------- < [*] [*] >= [*] and > [*] [*] >= [*] and > [*] [*] >= [*] and > [*] [*] >= [*] [*]
provided, that, if the Required Excess Spread Reserve Account Percentage has at any time increased, then the Required Excess Spread Reserve Account Percentage shall not decrease below the increased percentage unless a lower percentage is the appropriate Required Excess Spread Reserve Account Percentage for three consecutive Determination Dates; provided, further, that each of the Required Excess Spread Reserve Account Percentages set forth in the right-hand column above shall be increased by 1.0% if the Principal Payment Rate (i) for the preceding Monthly Period, in the case of any Determination Date or Increase Date occurring on or after the Determination Date in any month, or (ii) for the second preceding Monthly Period, in the case of any Increase Date occurring before the Determination Date in any month, shall be less "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 12 12 than [*] on such Determination Date or Increase Date. "Required FICO Reserve Account Percentage" shall mean, with respect to any Determination Date or Increase Date, the amount specified under the right-hand column below corresponding to the weighted average (by Principal Balance of the Receivables in the related Account as of such Determination Date or Increase Date) of the FICO Scores of the Obligors [*] set forth in the left-hand column below:
Weighted Average Required FICO Reserve FICO Score Account Percentage ---------------- --------------------- FICO >= [*] [*] [*] <= FICO < [*] [*] [*] <= FICO < [*] [*] [*] <= FICO < [*] [*] FICO < [*] [*]
"Required Reserve Account Addition" shall have the meaning specified in Section 4.10(a). "Required Reserve Account Amount" shall mean, with respect to any Determination Date or Increase Date, the product of (a) (i) in the case of any Determination Date, the Invested Amount for the Distribution Date following such Determination Date after giving effect to the principal distributions to be made on such Distribution Date and (ii) in the case of any Increase Date, the Invested Amount after giving effect to the Invested Amount Increase on such Increase Date, and (b) the sum of (i) [*], (ii) the Required Excess Spread Reserve Account Percentage for such Determination Date or Increase Date and (iii) the Required FICO Reserve Account Percentage for such Determination Date or Increase Date; provided, however, that (i) from and after the commencement of the Early Amortization Period, the Required Reserve Account Amount shall equal [*] and (ii) the Required Reserve Account Amount shall in no event be reduced below the lesser of (A) [*] of the Maximum Invested Amount and (B) during the Scheduled Amortization Period, the Invested Amount. "Reserve Account" shall have the meaning specified in Section 4.11(a). "Reset Date" shall mean each of (a) an Addition Date, (b) a Removal Date, and (c) a date on which an Invested Amount Increase occurs. "Revolving Period" shall mean the period beginning at the close of business on "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 13 13 the Series Cut-Off Date and ending on the earlier of (a) the close of business on the day immediately preceding the day the Scheduled Amortization Period commences and (b) the close of business on the day immediately preceding the day the Early Amortization Period commences; provided, however, that the Revolving Period shall be temporarily suspended for the duration of any Limited Amortization Period. "Scheduled Amortization Date" shall mean the earlier of (a) the last day of the June 2001 Monthly Period and (b) the Liquidity Reduction Date. "Scheduled Amortization Period" shall mean, unless a Pay Out Event with respect to Series 1999-2 shall have occurred prior thereto, the period commencing on the Scheduled Amortization Date and ending upon the first to occur of (x) the commencement of the Early Amortization Period, (y) the payment in full of the Invested Amount and (z) the Series 1999-2 Termination Date; provided, however, that the commencement of the Scheduled Amortization Period may occur on such later date as may be mutually agreed upon by the Administrative Agent and the Transferor. "Series Cut-Off Date" shall mean the close of business on May 21, 1999. "Series 1999-2" shall mean the Series of Certificates the terms of which are specified in this Supplement. "Series 1999-2 Allocable Finance Charge Collections" shall mean an amount equal to, with respect to any Monthly Period, the product of (i) the Series 1999-2 Floating Allocation Percentage and (ii) Collections of Finance Charge Receivables received by the Servicer during such Monthly Period, plus any Interest Rate Cap Payments received from the Interest Rate Cap Provider prior to the Distribution Date in the month following such Monthly Period. "Series 1999-2 Allocable Principal Collections" shall mean an amount equal to, (a) with respect to any Monthly Period during the Revolving Period, the product of (i) the Series 1999-2 Floating Allocation Percentage and (ii) Collections of Principal Receivables received by the Servicer during such Monthly Period, and (b) with respect to any Monthly Period during an Amortization Period, the product of (i) the Series 1999-2 Fixed Allocation Percentage and (ii) Collections of Principal Receivables received by the Servicer during such Monthly Period. "Series 1999-2 Certificateholders' Interest" shall mean the Certificateholders' Interest for Series 1999-2. "Series 1999-2 Fixed Allocation Percentage" shall mean an amount equal to, with respect to any Monthly Period during an Amortization Period, the percentage equivalent of a fraction, the numerator of which is the Invested Amount as of the last day of the Revolving Period and the denominator of which is the greatest of (a) the aggregate amount of Principal Receivables plus the amount then on deposit in the Excess Funding Account, in each case as of 14 14 the last day of such Monthly Period, (b) the Trust Invested Amount as of such last day and (c) the sum of the numerators used to calculate the fixed allocation percentages for all Series then outstanding for such Monthly Period; provided, however, that with respect to any Monthly Period in which one or more Reset Dates occurs, the Series 1999-2 Fixed Allocation Percentage shall be recalculated as provided above but as of such Reset Date for the period from and after the date on which any such Reset Date occurs to but excluding the date (if any) that another such Reset Date occurs or, if no other Reset Date occurs during such Monthly Period, to and including the last day of such Monthly Period. "Series 1999-2 Floating Allocation Percentage" shall mean an amount equal to, with respect to any Monthly Period, the percentage equivalent of a fraction, the numerator of which is the Invested Amount as of the last day of the immediately preceding Monthly Period and the denominator of which is the greater of (a) the aggregate amount of Principal Receivables plus the amount then on deposit in the Excess Funding Account, in each case as of as of the last day of such Monthly Period, and (b) the Trust Invested Amount as of such last day; provided, however, that with respect to any Monthly Period in which one or more Reset Dates occurs, the Series 1999-2 Floating Allocation Percentage shall be recalculated as provided above but as of such Reset Date for the period from and after the date on which any such Reset Date occurs to but excluding the date (if any) that another such Reset Date occurs or, if no other Reset Date occurs during such Monthly Period, to and including the last day of such Monthly Period. "Series 1999-2 Termination Date" shall mean the Distribution Date occurring in the 36th calendar month following the earlier to occur of (x) the commencement of the Scheduled Amortization Period or (y) the commencement of the Early Amortization Period. "Series Percentage" shall mean for any Monthly Period, (a) with respect to Finance Charge Receivables and Defaulted Amounts at any time and Principal Receivables during the Revolving Period, the Series 1999-2 Floating Allocation Percentage and (b) with respect to Principal Receivables during any Amortization Period, the Series 1999-2 Fixed Allocation Percentage. "Servicing Fee Rate" shall mean 2.0% per annum. "Shared Principal Collections" shall mean Shared Principal Collections as defined and described in Section 4.04 of the Agreement; amounts to be treated as Shared Principal Collections under this Supplement are described in subsections 4.05(b)(ii) and (c)(ii). "Three-Month Average Excess Spread" shall mean, (i) for any Determination Date or Increase Date occurring on or after the Determination Date in any month, the average of the Excess Spread Percentages for each of the three preceding Monthly Periods and (ii) for any Increase Date occurring prior to the Determination Date in any month, the average of the Excess Spread Percentages for each of the three Monthly Periods preceding the immediately prior Monthly Period. 15 15 (b) Notwithstanding anything to the contrary in the Agreement, (i) no action that is subject to the Rating Agency Condition or that requires Rating Agency consent pursuant to the terms of the Agreement or this Series Supplement (regardless of whether one or more Series of Investor Certificates rated by any Rating Agency is then outstanding), shall be taken unless the Administrative Agent shall have first consented in writing to such action, which consent by the Administrative Agent shall not be unreasonably withheld, and (ii) the Administrative Agent shall receive all notices, opinions, reports, certifications and other items to be provided to each Rating Agency pursuant to the Agreement as supplemented by this Series Supplement. (c) Each capitalized term defined herein shall relate to the Series 1999-2 Certificates and no other Series of Certificates issued by the Trust, unless the context otherwise requires. All capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Agreement. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Agreement, the terms and provisions of this Supplement shall govern. (d) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Supplement shall refer to this Supplement as a whole and not to any particular provision of this Supplement; references to any Article, subsection, Section or Exhibit are references to Articles, subsections, Sections and Exhibits in or to this Supplement unless otherwise specified; and the term "including" means "including without limitation." ARTICLE I Servicing Fee 1.1. Servicing Compensation. The share of the Servicing Fee allocable to the Series 1999-2 Certificateholders with respect to any Distribution Date (the "Monthly Servicing Fee") shall be equal to one-twelfth of the product of (a) the Servicing Fee Rate and (b) the Average Invested Amount for the Monthly Period preceding such Distribution Date; provided, however, that with respect to the first Distribution Date, the Monthly Servicing Fee shall equal the product of (a) a fraction, the numerator of which shall be the number of days in the period beginning on the Closing Date and ending on June 30, 1999 and the denominator of which shall be 360, (b) the Servicing Fee Rate and (c) the Average Invested Amount for the period beginning on the Closing Date and ending on June 30, 1999. ARTICLE II Rights of Series 1999-2 Certificateholders and Allocation and Application of Collections 2.1. Collections and Allocations. 16 16 (a) Allocations. Prior to the close of business on each Deposit Date, Collections of Finance Charge Receivables, Principal Receivables and Defaulted Receivables allocated to Series 1999-2 pursuant to Article IV of the Agreement (and, as described herein, Collections of Finance Charge Receivables reallocated from other Series) shall be allocated and distributed or reallocated as set forth in this Article IV. (b) Allocations to the Series 1999-2 Certificateholders. The Servicer shall prior to the close of business on any Deposit Date allocate, or cause the Trustee to allocate, to the Series 1999-2 Certificateholders and the Holders of the Transferor Certificates as follows: (i) Allocations of Finance Charge Collections. The Servicer shall allocate, or cause the Trustee to allocate, to the Series 1999-2 Certificateholders and retain in the Collection Account for application or reallocation as provided herein an amount equal to the product of (A) the Series 1999-2 Floating Allocation Percentage and (B) the aggregate amount of Collections of Finance Charge Receivables deposited in the Collection Account on such Deposit Date. (ii) Allocations of Principal Collections. The Servicer shall allocate to the Series 1999-2 Certificateholders, or cause the Trustee to allocate, the following amounts as set forth below: (x) Allocations During the Revolving Period. During the Revolving Period, an amount equal to the product of (I) the Series 1999-2 Floating Allocation Percentage and (II) the aggregate amount of Collections of Principal Receivables deposited in the Collection Account on such Deposit Date shall be allocated to the Series 1999-2 Certificateholders and, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, shall be retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections on the related Distribution Date, and if no other Principal Sharing Series is outstanding and in its amortization period or accumulation period, shall be paid to the Holders of the Transferor Certificates; provided, however, that such amount to be paid to the Holders of the Transferor Certificates on any Deposit Date shall be paid to such Holders only if the Transferor Amount on such Deposit Date is greater than the Required Transferor Amount (after giving effect to all Principal Receivables transferred to the Trust on such day) and otherwise shall be deposited in the Excess Funding Account. (y) Allocations During any Limited Amortization Period. During any Limited Amortization Period, an amount equal to the product of (I) the Series 1999-2 Fixed Allocation Percentage and (II) the aggregate amount of Collections of Principal Receivables deposited in the Collection Account on such Deposit Date shall be allocated to the Series 1999-2 Certificateholders and retained in the Collection Account until applied as provided herein; provided, however, that, if 17 17 the Series 1999-2 Allocable Principal Collections deposited on that and each prior Deposit Date during the then current Monthly Period exceed the difference between the Limited Amortization Amount and the total amount of principal payments paid to the Series 1999-2 Certificateholders during the related Limited Amortization Period, then such excess shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections on the related Distribution Date, and second, paid to the Holders of the Transferor Certificates only if the Transferor Amount on such Deposit Date is greater than the Required Transferor Amount (after giving effect to all Principal Receivables transferred to the Trust on such day) and otherwise shall be deposited in the Excess Funding Account. (z) Allocations During the Scheduled Amortization Period or the Early Amortization Period. During the Scheduled Amortization Period or the Early Amortization Period, an amount equal to the product of (I) the Series 1999-2 Fixed Allocation Percentage and (II) the aggregate amount of Collections of Principal Receivables deposited in the Collection Account on such Deposit Date shall be allocated to the Series 1999-2 Certificateholders and retained in the Collection Account until applied as provided herein; provided, however, that if after the date on which an amount of such Collections equal to the Invested Amount has been deposited into the Collection Account and allocated to the Series 1999-2 Certificateholders, amounts allocated to the Series 1999-2 Certificateholders pursuant to this subsection (z) shall be first, if any other Principal Sharing Series is outstanding and in its amortization period or accumulation period, retained in the Collection Account for application, to the extent necessary, as Shared Principal Collections on the related Distribution Date, and second, paid to the Holders of the Transferor Certificates only if the Transferor Amount on such Deposit Date is greater than the Required Transferor Amount (after giving effect to all Principal Receivables transferred to the Trust on such day) and otherwise shall be deposited in the Excess Funding Account. The withdrawals to be made from the Collection Account pursuant to this Section 4.01 do not apply to deposits into the Collection Account that do not represent Collections, including payment of the purchase price for the Certificateholders' Interest pursuant to Section 2.06 or 10.01 of the Agreement, payment of the purchase price for the Series 1999-2 Certificateholders' Interest pursuant to Section 7.01 of this Supplement and proceeds from the sale, disposition or liquidation of Receivables pursuant to Section 9.01 or 12.02 of the Agreement. 2.2. Determination of Monthly Interest. (a) The amount of monthly interest distributable from the Collection Account with respect to the Certificates on any Distribution Date shall be amounts 18 18 equal to the amounts calculated by the Administrative Agent pursuant to the Certificate Purchase Agreement as the Monthly Interest for the related Interest Period. Notwithstanding anything to the contrary herein, the Monthly Interest shall be distributed on the Certificates only to the extent permitted by applicable law. (b) Two Business Days prior to each Distribution Date, the Servicer shall determine and notify the Trustee in writing of the excess, if any (the "Interest Shortfall"), of (x) the Monthly Interest for such Distribution Date over (y) the amount which will be available to be distributed with respect to the Certificates on such Distribution Date in respect thereof pursuant to this Supplement. If, on any Distribution Date, the Interest Shortfall is greater than zero, on each subsequent Distribution Date until such Interest Shortfall is fully paid, an additional amount ("Additional Interest") equal to (x) the actual number of days in the Interest Period commencing on such Distribution Date divided by 360, multiplied by (y) the product of (i) the Certificate Rate for such Interest Period plus 2.0% per annum and (ii) such Interest Shortfall shall be payable as provided herein with respect to the Certificates. Notwithstanding anything to the contrary herein, Additional Interest shall be distributed with respect to the Certificates only to the extent permitted by applicable law. (c) On or before the fourth Business Day preceding each Distribution Date, the Administrative Agent shall calculate the Certificate Rate and the Monthly Interest for the related Interest Period. Pursuant to the Certificate Purchase Agreement, the Administrative Agent shall provide the Servicer with written notice of the Certificate Rate and the Monthly Interest for such Interest Period on or before the fourth Business Day preceding such Distribution Date. 2.3. Suspension of the Revolving Period; Limited Amortization Period. The Transferor may from time to time, in its sole discretion, unless a Pay Out Event shall have occurred prior thereto, suspend the Revolving Period and cause a Limited Amortization Period to commence for one or more Monthly Periods by delivering to the Servicer, the Trustee and the Administrative Agent written notice at least two Business Days prior to the first day of the Monthly Period in which such Limited Amortization Period is scheduled to commence, which notice shall specify the Limited Amortization Amount for such Limited Amortization Period; provided, however, that any Limited Amortization Amount shall be in an amount of at least $1,000,000 or any higher multiple of $100,000; provided further that the Transferor may not cause a Limited Amortization Period to commence unless, in the reasonable belief of the Transferor, such Limited Amortization Period would not result in the occurrence of a Pay Out Event. 2.4. Required Amount. With respect to each Distribution Date, on the related Determination Date, the Servicer shall determine the amount (the "Required Amount"), if any, by which (x) the sum of the amounts required pursuant to subsections 4.05(a)(i), (ii) and (iii) for such Distribution Date, exceeds (y) the Series 1999-2 Allocable Finance Charge Collections for such Distribution Date. In the event that the difference between (x) the Required Amount for such Distribution Date and (y) the amount of Excess 19 19 Spread and Excess Finance Charge Collections allocated to Series 1999-2 applied with respect thereto pursuant to Section 4.07(a) on such Distribution Date is greater than zero, the Servicer shall give written notice to the Trustee of such positive Required Amount on the date of computation. 2.5. Application of Series 1999-2 Allocable Finance Charge Collections and Available Principal Collections. The Servicer shall apply, or shall cause the Trustee to apply by written instruction to the Trustee, on each Distribution Date, Series 1999-2 Allocable Finance Charge Collections and Available Principal Collections on deposit in the Collection Account with respect to such Distribution Date to make the following distributions: (a) On each Distribution Date, an amount equal to the Series 1999-2 Allocable Finance Charge Collections will be distributed or deposited in the following priority: (i) an amount equal to Monthly Interest for such Distribution Date, plus the amount of any Monthly Interest previously due but not distributed to Certificateholders, plus the amount of any Additional Interest for such Distribution Date and any Additional Interest previously due but not distributed to Certificateholders on a prior Distribution Date, shall be distributed to the Certificateholders; (ii) an amount equal to the Monthly Servicing Fee for such Distribution Date plus the amount of any Monthly Servicing Fee previously due but not distributed to the Servicer on a prior Distribution Date, shall be distributed to the Servicer (unless such amount has been netted against deposits to the Collection Account in accordance with Section 4.04 of the Agreement); (iii) an amount equal to the Investor Default Amount for such Distribution Date shall be treated as a portion of Available Principal Collections for such Distribution Date; and (iv) the balance, if any, shall constitute Excess Spread and shall be allocated and distributed or deposited as set forth in Section 4.07. (b) On each Distribution Date with respect to the Limited Amortization Period, an amount equal to the Available Principal Collections for the related Monthly Period shall be distributed in the following order of priority: (i) an amount which, together with the aggregate amounts distributed pursuant to this clause (i) on prior Distribution Dates with respect to the same Limited Amortization Amount, equals the Limited Amortization Amount, shall be distributed to the Certificateholders; and (ii) the balance of such Available Principal 20 20 Collections shall be treated as Shared Principal Collections and applied in accordance with Section 4.04 of the Agreement. (c) On each Distribution Date with respect to the Scheduled Amortization Period or the Early Amortization Period, an amount equal to the Available Principal Collections for the related Monthly Period shall be distributed in the following order of priority: (i) an amount up to the Invested Amount on such Distribution Date shall be distributed to the Certificateholders; and (ii) for each Distribution Date beginning on the Distribution Date on which the Invested Amount is paid in full, an amount equal to the balance, if any, of such Available Principal Collections shall be treated as Shared Principal Collections and applied in accordance with Section 4.04 of the Agreement. 2.6. Defaulted Amounts; Investor Charge-Offs. On each Determination Date, the Servicer shall calculate the Investor Default Amount, if any, for the related Distribution Date. If, on any Distribution Date, the Required Amount for the related Monthly Period exceeds the sum of (a) the amount of Excess Spread and Excess Finance Charge Collections allocable to Series 1999-2 with respect to such Monthly Period, and (b) the amount then on deposit in the Reserve Account, the Invested Amount shall be reduced by the amount by which such Required Amount exceeds such sum, but not by more than the Investor Default Amount for such Distribution Date (an "Investor Charge-Off"). Investor Charge-Offs shall thereafter be reimbursed and the Invested Amount increased (but not by an amount in excess of the aggregate unreimbursed Investor Charge-Offs) on any Distribution Date by the amount of Series 1999-2 Allocable Finance Charge Collections and Excess Spread and Excess Finance Charge Collections allocated to Series 1999-2 with respect to the related Monthly Period which are allocated and available for that purpose pursuant to Section 4.07(b). 2.7. Excess Spread and Excess Finance Charge Collections. The Servicer shall apply, or shall cause the Trustee to apply by written instruction to the Trustee, on each Distribution Date, Excess Spread and Excess Finance Charge Collections allocated to Series 1999-2 with respect to the related Monthly Period, to make the following distributions or deposits in the following order of priority: (a) an amount equal to the Required Amount shall be distributed by the Trustee to fund the Required Amount in accordance with, and in the priority set forth in, subsections 4.05(a)(i), (ii) and (iii); (b) an amount equal to the aggregate amount of Investor Charge-Offs which have not been previously reimbursed shall be treated as a portion of Available Principal Collections for such Distribution Date; 21 21 (c) if the amount on deposit in the Reserve Account is less than the Required Reserve Account Amount for the immediately preceding Determination Date (such difference, the "Reserve Account Deficiency"), an amount equal to such Reserve Account Deficiency shall be deposited in the Reserve Account; (d) any Additional Amounts due and payable to the Administrative Agent pursuant to the Certificate Purchase Agreement with respect to such Distribution Date shall be paid to the Administrative Agent; and (e) the balance, if any, will constitute a portion of Excess Finance Charge Collections for such Distribution Date and will be available for allocation to other Series or to the Holders of the Transferor Certificates as described in Section 4.04 of the Agreement. 2.8. Excess Finance Charge Collections. Series 1999-2 shall be an Excess Allocation Series. Subject to Section 4.04 of the Agreement, Excess Finance Charge Collections with respect to the Excess Allocation Series for any Distribution Date will be allocated to Series 1999-2 in an amount equal to the product of (x) the aggregate amount of Excess Finance Charge Collections with respect to all the Excess Allocation Series for such Distribution Date and (y) a fraction, the numerator of which is the Finance Charge Shortfall for Series 1999-2 for such Distribution Date and the denominator of which is the aggregate amount of Finance Charge Shortfalls for all the Excess Allocation Series for such Distribution Date. The "Finance Charge Shortfall" for Series 1999-2 for any Distribution Date will be equal to the excess, if any, of (a) the full amount required to be paid, without duplication, pursuant to subsections 4.05(a)(i)-(iii) and subsections 4.07(a) through (d) on such Distribution Date over (b) the Series 1999-2 Allocable Finance Charge Collections applied on such Distribution Date. 2.9. Shared Principal Collections. Subject to Section 4.04 of the Agreement, Shared Principal Collections for any Distribution Date will be allocated to Series 1999-2 in an amount equal to the product of (x) the aggregate amount of Shared Principal Collections with respect to all Principal Sharing Series for such Distribution Date and (y) a fraction, the numerator of which is the Series 1999-2 Principal Shortfall for such Distribution Date and the denominator of which is the aggregate amount of Principal Shortfalls for all the Series which are Principal Sharing Series for such Distribution Date. The "Principal Shortfalls" for Series 1999-2 will be equal to (a) for any Distribution Date with respect to the Revolving Period, zero; (b) for any Distribution Date with respect to the Limited Amortization Period, the excess, if any, of the Limited Amortization Amount not previously distributed over the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections), and (c) for any Distribution Date with respect to the Scheduled Amortization Period or the Early Amortization Period, the excess, if any, of the Invested Amount over the amount of Available Principal Collections for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections). 2.10. Invested Amount Increases. 22 22 (a) The Series 1999-2 Certificateholders agree, by acceptance of their Certificates, that the Transferor may, from time to time, prior to the earlier of the commencement of the Scheduled Amortization Period and the commencement of the Early Amortization Period and so long as a Limited Amortization Period is not outstanding, and subject to the terms, conditions and restrictions set forth in this Section 4.10(a) and in the Certificate Purchase Agreement, request that the Certificateholders acquire additional undivided interests in the Trust in specified amounts (each, an "Invested Amount Increase"). Each and every Invested Amount Increase shall, however, be subject to the satisfaction of the Increase Conditions, and shall be permitted only (i) during the Revolving Period and (ii) upon the request made by the Transferor to the Administrative Agent to increase the outstanding principal balance of the Certificates held by the Purchaser and the Invested Amount to an amount not to exceed the Maximum Invested Amount. Any such Invested Amount Increase shall be (i) if the applicable Increase Date occurs no more than 90 days after the Closing Date, in a minimum amount of [*] or an integral multiple of [*] in excess of that amount or (ii) if the applicable Increase Date occurs 90 days or more after the Closing Date, in a minimum amount of [*] or an integral multiple of [*] in excess of that amount. To request any such increase, the Transferor shall be required to give to each of the Trustee, the Servicer and the Administrative Agent, at least two Business Days prior to the date of the requested Invested Amount Increase, an irrevocable Invested Amount Increase Request in the form attached hereto as Exhibit E, specifying (i) the amount of such increase (the "Increase Amount"), (ii) the date on which such Invested Amount Increase is to occur, which date shall be a Business Day during the Revolving Period (an "Increase Date"), (iii) the difference between the Required Reserve Account Amount for such Increase Date after giving effect to the Increase Amount on such Increase Date and the amount then on deposit in the Reserve Account (such difference, the "Required Reserve Account Addition") and (iv) the payment instructions for remittance of the proceeds of such requested Invested Amount Increase. The proceeds of such Invested Amount Increase shall be remitted to the Transferor and the Trustee, for deposit in the Reserve Account in accordance with Section 4.11.(c), in accordance with such payment instructions. (b) On the Increase Date for such Invested Amount Increase, after satisfaction of all conditions to such Invested Amount Increase, the Purchaser shall remit such Increase Amount, to the extent it has otherwise agreed or committed to fund such Increase, no later than 3:00 p.m. (New York City time) in immediately available funds in accordance with the payment instructions specified in the Notice of Invested Amount Increase, and upon such remittance the outstanding principal balance of the Certificates, held by the Purchaser and the Invested Amount, shall be increased by the amount of such remittance. Concurrently with the making of such Invested Amount Increase, the Transferor and the Administrative Agent shall deliver to the Trustee a confirmation of such Invested Amount Increase, specifying the Increase Amount, and the Trustee shall promptly annotate the Certificate Register accordingly. 2.11. Reserve Account. (a) The Servicer, for the benefit of the Series 1999-2 Certificateholders, shall establish and maintain with the Trustee or its nominee in the name of the "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 23 23 Trustee, on behalf of the Trust, an Eligible Account (including any subaccount thereof) bearing a designation clearly indicating that the funds and other property credited thereto are held for the benefit of the Series 1999-2 Certificateholders (the "Reserve Account"). The Reserve Account shall be under the sole dominion and control of the Trustee for the benefit of the Series 1999-2 Certificateholders. Except as expressly provided in this Supplement or the Agreement, the Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds held in the Reserve Account for any amount owed to it by the Trustee, the Trust or any Series 1999-2 Certificateholder. If, at any time, the Reserve Account ceases to be an Eligible Account, the Trustee (or the Servicer on its behalf) shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, as to which the Administrative Agent may consent) establish a new Reserve Account meeting the conditions specified above, transfer any monies, documents, instruments, securities, security entitlements, certificates of deposit and other property to such new Reserve Account and from the date such new Reserve Account is established, it shall be the "Reserve Account." The Servicer shall have the power, revocable by the Trustee, to make withdrawals and payments from the Reserve Account and to instruct the Trustee to make withdrawals and payments from the Reserve Account for the purposes of carrying out the Servicer's or the Trustee's duties hereunder. (b) On each Distribution Date, the Servicer shall direct the Trustee in writing to (i) withdraw an amount equal to the lesser of (A) the excess of (x) Required Amount for such Distribution Date over (y) the amount of Excess Spread and Excess Finance Charge Collections allocated for Series 1999-2 with respect to the related Monthly Period and (B) the amount available in the Reserve Account, from the Reserve Account, (ii) deposit such amount into the Collection Account and (iii) apply such amount in the amounts and pursuant to the priorities set forth in subsection 4.07(a). If on any Distribution Date during the Revolving Period, the Scheduled Amortization Period or any Limited Amortization Period, after giving effect to all withdrawals from and deposits to the Reserve Account, the amount on deposit in the Reserve Account would exceed the Required Reserve Account Amount, such excess shall be deposited into the Collection Account and treated as Collections of Finance Charge Receivables. If on any Distribution Date during the Early Amortization Period, after giving effect to all withdrawals from and deposits to the Reserve Account, there are any amounts on deposit in the Reserve Account, such amounts shall be treated as Available Principal Collections for such Distribution Date. (c) On each Increase Date, the Trustee shall deposit all funds remitted by the Administrative Agent on such Increase Date that constitute the Required Reserve Account Addition for such Increase Date into the Reserve Account. (d) Funds on deposit in the Reserve Account shall at the written direction of the Servicer be invested by the Trustee or its nominee in Eligible Investments selected by the Servicer. All such Eligible Investments shall be held by the Trustee for the benefit of the Series 1999-2 Certificateholders. Investments of funds representing Collections collected during any 24 24 Monthly Period shall be invested in Eligible Investments that will mature so that such funds will be available no later than the close of business on each monthly Transfer Date following such Monthly Period in amounts sufficient to the extent of such funds to make the required distributions on the following Distribution Date. No such Eligible Investment shall be disposed of prior to its maturity; provided, however, that the Trustee may sell, liquidate or dispose of any such Eligible Investment before its maturity, at the written direction of the Servicer, if such sale, liquidation or disposal would not result in a loss of all or part of the principal portion of such Eligible Investment or if, prior to the maturity of such Eligible Investment, a default occurs in the payment of principal, interest or any other amount with respect to such Eligible Investment. Unless directed by the Servicer in writing, funds deposited in the Reserve Account on a Transfer Date with respect to the immediately succeeding Distribution Date are not required to be invested overnight. 2.12. Interest Rate Cap. (a) The Transferor hereby represents that it has obtained the Interest Rate Cap in favor of the Trustee for the benefit of the Trust. The Interest Rate Cap provides that (i) the Trust shall not be required to make any payments thereunder, (ii) the Interest Rate Cap shall terminate on the earlier of (A) the date of the final payment with respect to the Series 1999-2 Certificates and (B) the date on which the Notional Amount is reduced to zero and (iii) the Trust shall be entitled to receive Interest Rate Cap Payments (determined in accordance with the Interest Rate Cap) from the Interest Rate Cap Provider on the Business Day immediately preceding each Distribution Date if the composite interest rate for "AA" commercial paper with a maturity of 30 days, as reported by the Federal Reserve Bank of New York in Federal Reserve Statistical Release H.15, for any Interest Period exceeds the Cap Rate and the Notional Amount is greater than zero. Each Interest Rate Cap Payment and any payments upon early termination of the Interest Rate Cap shall be deposited into the Collection Account as Series 1999-2 Allocable Finance Charge Collections. Payments received by the Trustee from the Interest Rate Cap Provider upon the early termination of the Interest Rate Cap shall be applied to the purchase of a Replacement Interest Rate Cap or Qualified Substitute Arrangement (as defined below), or if no Replacement Interest Rate Cap or Qualified Substitute Arrangement is obtained, shall be applied in accordance with Section 4.05. (b) If (i) the Interest Rate Cap Provider is a Person other than the Administrative Agent or an Affiliate of the Administrative Agent, (ii) the long-term unsecured debt rating of the Interest Rate Cap Provider is withdrawn or reduced below AA by Standard & Poor's or Aa2 by Moody's, and (iii) the short-term unsecured debt rating of the Interest Rate Cap Provider is withdrawn or reduced below A-1+ by Standard & Poor's or P-1 by Moody's, then within thirty days after the Interest Rate Cap Provider has received notice of such decline in the creditworthiness of the Interest Rate Cap Provider as determined by Standard & Poor's or Moody's, as the case may be, either (x) the Interest Rate Cap Provider, upon satisfaction of the Rating Agency Condition, will enter into an arrangement the purpose of which shall be to ensure performance by the Interest Rate Cap Provider of its obligations under the Interest Rate Cap; or (y) the Servicer shall at its option take one of the following actions: (i) provided that the 25 25 Replacement Interest Rate Cap or Qualified Substitute Arrangement (as described below) meeting the requirements of Section 4.12(c) have been obtained, direct the Trustee (A) to provide written notice to the Interest Rate Cap Provider of its intention to terminate the Interest Rate Cap within such thirty-day period and (B) to terminate the Interest Rate Cap within such thirty-day period, to request the payment to it of all amounts due to the Trust under the Interest Rate Cap through the termination date and to deposit any such amounts so received, on the day of receipt, into the Collection Account, (ii) establish any other arrangement (including an arrangement or arrangements in addition to or in substitution for any prior arrangement made in accordance with the provisions of this Section 4.12(b)) which satisfies the Rating Agency Condition (a "Qualified Substitute Arrangement") or (iii) give notice to the Trustee of the occurrence of the event described in Section 6.01(l). (c) The Trustee shall not terminate the Interest Rate Cap unless, prior to the expiration of the thirty-day period referred to in said Section 4.12(b), the Transferor delivers to the Trustee (i) a Replacement Interest Rate Cap or a Qualified Substitute Arrangement, (ii) to the extent applicable, an Opinion of Counsel as to the due authorization, execution and delivery and validity and enforceability of such Replacement Interest Rate Cap or Qualified Substitute Arrangement, as the case may be, and (iii) evidence that the termination of the Interest Rate Cap and its replacement with such Replacement Interest Rate Cap or Qualified Substitute Arrangement has satisfied the Rating Agency Condition. (d) The Servicer shall notify the Trustee and the Rating Agencies within five Business Days after obtaining knowledge that the senior long-term or short-term rating of the Interest Rate Cap Provider has been withdrawn or reduced by Standard & Poor's or Moody's. (e) Notwithstanding the foregoing, the Transferor may at any time obtain a Replacement Interest Rate Cap, provided that the Transferor delivers to the Trustee (i) an Opinion of Counsel as to the due authorization, execution and delivery and validity and enforceability of such Replacement Interest Rate Cap and (ii) evidence that the termination of the then current Interest Rate Cap and its replacement with such Replacement Interest Rate Cap has satisfied the Rating Agency Condition. (f) The Trustee hereby appoints the Servicer to perform the duties of the calculation agent under the Interest Rate Cap Agreement and the Servicer accepts such appointment. (g) By virtue of its acceptance of a Series 1999-2 Certificate, each Series 1999-2 Certificateholder shall be deemed to have agreed that it will have no direct right of action against the Interest Rate Cap Provider for any failure to make any payment due under the Interest Rate Cap. (h) The Transferor shall have the option to terminate the Interest Rate Cap at any time if the Transferor obtains a Qualified Substitute Arrangement. 26 26 ARTICLE III Distributions and Reports to Series 1999-2 Certificateholders 3.1. Distributions. On each Distribution Date, the Trustee shall distribute to the Series 1999-2 Certificateholders of record on the preceding Record Date (other than as provided in Section 12.02 of the Agreement respecting a final distribution) the amounts required to be distributed thereon pursuant to Article IV hereof. Distributions to Series 1999-2 Certificateholders hereunder shall be made by wire transfer in immediately available funds. 3.2. Reports and Statements to Certificateholders. (a) No later than the Business Day following each Determination Date, the Servicer will provide to the Administrative Agent and the Trustee statements, substantially in the form of Exhibit B hereto (each, a "Monthly Servicer Report"), setting forth certain information relating to the Trust and the Certificates. (b) On or before January 31 of each calendar year, beginning with calendar year 2000, the Trustee shall furnish or cause to be furnished to each Person who at any time during the preceding calendar year was a Series 1999-2 Certificateholder, a statement prepared by the Servicer containing the information which is required to be contained in the statement to Series 1999-2 Certificateholders as set forth in paragraph (a) above, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 1999-2 Certificateholder, together with other information as is required to be provided by an issuer of indebtedness under the Internal Revenue Code and such other customary information as is necessary to enable the Series 1999-2 Certificateholders to prepare their tax returns. Such obligation of the Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Trustee pursuant to any requirements of the Internal Revenue Code as from time to time in effect. ARTICLE IV Pay Out Events .1. Pay Out Events. If any one of the following events shall occur with respect to the Series 1999-2 Certificates: (a) the occurrence of an Insolvency Event relating to the Transferor, an Account Owner or the Servicer; (b) the Trust or the Transferor becomes an investment company within the meaning of the Investment Company Act; 27 27 (c) the Transferor shall become unable, for any reason, to transfer Receivables to the Trust pursuant to the Agreement; (d) the Transferor or the Servicer shall fail (i) to make any payment or deposit required by the terms of the Agreement or this Supplement on or before the date occurring five Business Days after the date such payment or deposit is required to be made therein or herein or (ii) to observe or perform any other covenants or agreements of the Transferor or the Servicer set forth in the Agreement, the Certificate Purchase Agreement or this Supplement, which failure has a material adverse effect on the Certificateholders and which continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor or the Servicer, as applicable, by the Trustee, or to the Transferor or the Servicer, as applicable, and the Trustee by any Holder of the Certificates; (e) any representation or warranty made by the Transferor or the Servicer in the Agreement or this Supplement shall prove to have been incorrect in any material respect when made or when delivered and continues to be incorrect in any material respect for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor or the Servicer, as applicable, by the Trustee, or to the Transferor and the Trustee by any Holder of the Series 1999-2 Certificates and as a result of which the interests of the Certificateholders are materially and adversely affected for such period; provided, however, that a Pay Out Event pursuant to this Section 6.01(e) shall not be deemed to have occurred if the Transferor has accepted reassignment of the related Receivable, or all of such Receivables, if applicable, during such period in accordance with the provisions of the Agreement; (f) Three-Month Average Excess Spread is less than [*] as of any Determination Date; (g) the Servicer or the Transferor thereof shall be in Default under any loan agreement such that the lender thereunder would be authorized, pursuant to the terms of such agreement, to demand immediate payment by the Servicer, the Transferor of an amount in excess of [*]; (h) if Heritage Bank of Commerce is an Account Owner, the occurrence of any uncured material default under the Account Origination Agreement or the Account Origination Agreement is terminated; (i) a court of competent jurisdiction shall issue a final non-appealable order to the effect that the Trustee shall, for any reason, fail to have a valid and perfected first priority security interest in the Receivables; "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 28 28 (j) any failure to pay to Certificateholders the full amount of interest due on the Certificates on any Distribution Date; (k) failure on the part of the Interest Rate Cap Provider to make an Interest Rate Cap Payment; (l) at any time, the Interest Rate Cap Requirement is not satisfied; or (m) a failure of the Transferor to convey Receivables in Additional Accounts to the Trust within five Business Days after it is required to do so pursuant to Section 2.09(a)(i) of the Agreement; then, in the case of any event described in subparagraph (d), (e), (g), (j), (k) or (l) after the applicable grace period, if any, set forth in such subparagraphs, either the Trustee or the Holders of Series 1999-2 Certificates evidencing more than 50% of the aggregate unpaid principal amount of Certificates by notice then given in writing to the Transferor and the Servicer (and to the Trustee if given by the Certificateholders) may declare that a Pay Out Event has occurred with respect to Series 1999-2 as of the date of such notice, and, in the case of any event described in subparagraph (a), (b), (c), (f), (h), (i) or (m) a Pay Out Event shall occur with respect to Series 1999-2 without any notice or other action on the part of the Trustee or the Series 1999-2 Certificateholders immediately upon the occurrence of such event. ARTICLE V Optional Repurchase; Series Termination 5.1. Optional Repurchase. (a) On any day occurring on or after the date on which the Invested Amount is reduced to 5% or less of the highest Invested Amount during the Revolving Period, at any time on or after the Closing Date, the Transferor shall have the option to purchase the Series 1999-2 Certificateholders' Interest, at a purchase price equal to (i) if such day is a Distribution Date, the Reassignment Amount for such Distribution Date or (ii) if such day is not a Distribution Date, the Reassignment Amount for the Distribution Date following such day. (b) The Transferor shall give the Servicer, the Trustee and the Administrative Agent at least 30 days prior written notice of the date on which the Transferor intends to exercise such purchase option. Not later than 2:00 p.m., New York City time, on the exercise date the Transferor shall deposit the Reassignment Amount into the Collection Account in immediately available funds. Such purchase option is subject to payment in full of the Reassignment Amount. Following the deposit of the Reassignment Amount into the Collection Amount in accordance with the foregoing, the Invested Amount for Series 1999-2 shall be reduced to zero and the Series 1999-2 Certificateholders shall have no further interest in the 29 29 Receivables. The Reassignment Amount shall be distributed as set forth in Section 8.01(b). 5.2. Series Termination. (a) If, on the Distribution Date occurring two months prior to the Series 1999-2 Termination Date, the Invested Amount (after giving effect to all changes therein on such date) would be greater than zero, the Servicer, on behalf of the Trustee, shall, within the 40-day period which begins on such Distribution Date, solicit bids for the sale of Principal Receivables and the related Finance Charge Receivables (or interests therein) in an amount equal to the Invested Amount together with accrued and unpaid interest at the close of business on the last day of the Monthly Period preceding the Series 1999-2 Termination Date (after giving effect to all distributions required to be made on the Series 1999-2 Termination Date, except pursuant to this Section 7.02). Such bids shall require that such sale shall (subject to Section 7.02(b)) occur on the Series 1999-2 Termination Date. The Transferor shall be entitled to participate in, and to receive from the Trustee a copy of each other bid submitted in connection with, such bidding process. (b) The Servicer, on behalf of the Trustee, shall sell such Receivables (or interests therein) on the Series 1999-2 Termination Date to the bidder who made the highest cash purchase offer. The proceeds of any such sale shall be treated as Collections on the Receivables allocated to the Series 1999-2 Certificateholders pursuant to the Agreement and this Supplement; provided, however, that the Servicer shall determine conclusively the amount of such proceeds which are allocable to Finance Charge Receivables and the amount of such proceeds which are allocable to Principal Receivables. During the period from the Distribution Date occurring two months prior to the Series 1999-2 Termination Date to the Series 1999-2 Termination Date, the Servicer shall continue to collect payments on the Receivables and allocate and deposit such Collections in accordance with the provisions of the Agreement and the Supplements. ARTICLE VI Final Distributions 6.1. Sale of Receivables or Certificateholders' Interest pursuant to Section 2.06 or 10.01 of the Agreement and Section 7.01 or 7.02 of this Supplement. (a) The amount to be paid by the Transferor with respect to Series 1999-2 in connection with a reassignment of Receivables to the Transferor pursuant to Section 2.06 of the Agreement shall equal the Reassignment Amount for the first Distribution Date following the Monthly Period in which the reassignment obligation arises under the Agreement. (b) The amount to be paid by the Transferor with respect to Series 1999-2 in connection with a repurchase of the Certificateholders' Interest pursuant to 30 30 Section 10.01 of the Agreement shall equal the Reassignment Amount for the Distribution Date of such repurchase. (c) With respect to the Reassignment Amount deposited into the Collection Account pursuant to Section 7.01 or any amounts allocable to the Series 1999-2 Certificateholders' Interest deposited into the Collection Account pursuant to Section 7.02, the Trustee shall, in accordance with the written direction of the Servicer, not later than 12:00 noon, New York City time, on the related Distribution Date, make deposits or distributions of the following amounts (in the priority set forth below and, in each case after giving effect to any deposits and distributions otherwise be made on such date) in immediately available funds: (x) the Invested Amount on such Distribution Date will be distributed to the Paying Agent for payment to the Certificateholders and (y) an amount equal to the sum of (A) Monthly Interest for such Distribution Date and (B) any Monthly Interest previously due but not distributed to the Certificateholders on a prior Distribution Date will be distributed to the Paying Agent for payment to the Certificateholders. (d) Notwithstanding anything to the contrary in this Supplement or the Agreement, all amounts distributed to the Paying Agent pursuant to Section 8.01(c) for payment to the Series 1999-2 Certificateholders shall be deemed distributed in full to the Series 1999-2 Certificateholders on the date on which such funds are distributed to the Paying Agent pursuant to this Section and shall be deemed to be a final distribution pursuant to Section 12.02 of the Agreement. ARTICLE VII Miscellaneous Provisions 7.1. Ratification of Agreement. As supplemented by this Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. 7.2. Counterparts. This Supplement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. 7.3. Governing Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 7.4. Private Placement of Series 1999-2 Certificates; Form of Delivery of Series 1999-2 Certificates. 31 31 (a) The Series 1999-2 Certificates have not been registered under the Securities Act of 1933, as amended, (the "Securities Act"), or any state securities law. No transfer of any Series 1999-2 Certificate shall be made except to the Purchaser or in accordance with the terms of the Certificate Purchase Agreement and either (i) pursuant to an effective registration under the Securities Act and applicable state securities or "blue sky" laws or (ii) in a transaction exempt from the registration requirements of the Securities Act and applicable state securities or "blue sky" laws, to (A) a person who the transferor reasonably believes is a Qualified Institutional Buyer within the meaning thereof in Rule 144A under the Securities Act that is aware that the resale or other transfer is being made in reliance on Rule 144A, (2) a person who is an accredited investor as defined in Rule 501(a) under the Securities Act or (3) an institution which has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment therein. The Series 1999-2 Certificates shall bear legends to the effect set forth in Exhibit A. The Transferor is not obligated to register the Series 1999-2 Certificates under the Securities Act or any other securities or "blue sky" law or to take any other action not otherwise required under this Supplement or the Agreement to permit the transfer of Series 1999-2 Certificates without registration or as described above. (b) The Series 1999-2 Certificates shall be delivered as Registered Certificates as provided in Section 6.01. 7.5. Successors and Assigns. This Supplement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns, except that the Transferor may not assign or transfer any of its rights under this Supplement without the prior written consent of the Administrative Agent and without prior notice to each Rating Agency. 7.6. Amendments. In addition to the conditions to the amendment of the Agreement and this Supplement set forth in the Agreement, neither the Agreement nor this Supplement may be amended without the prior written consent of the Administrative Agent; provided, however, that, the Agreement may be amended without the prior written consent of the Administrative Agent if, not less than five Business Days prior to the effectiveness of any such amendment, there shall have been delivered to the Administrative Agent (i) an Opinion of Counsel addressed to the Administrative Agent that any such amendment shall not adversely affect in any material respect the interests of the Series 1999-2 Certificateholders and (ii) a copy of such amendment. 7.7. Amendments to Agreement. (a) For the term of this Supplement, the definition of "Eligible Account" is hereby amended with the addition of the following condition: (i) The Obligor of which had a FICO score as of the date of the 32 32 approval of the origination of the Account of at least [*]. (b) For the terms of this Supplement, Section 2.09(c) of the Agreement is hereby amended with the addition of the following condition (ix): (ix) after giving effect to the Additional Accounts, no more than [*] of the Accounts (calculated on the basis of the amount of outstanding Principal Receivables relating to the Accounts on the dates they became Accounts) shall have related Obligors with FICO Scores as of the date of origination of their Accounts of less than [*]. (c) For the terms of this Supplement, Section 3.03 of the Agreement is hereby amended with the addition of the following paragraph (l): (l) Service Providers: The Servicer shall engage First Data, Total Systems or, subject to the Rating Agency Condition, another Person, to bill Obligors, record charges incurred under and payments received on Accounts and calculate finance charges due under the Accounts. 7.8. Tax Matters. (a) Notwithstanding anything to the contrary herein, each of the Paying Agent, Servicer or Trustee shall be entitled to withhold any amount that it reasonably determines in its sole discretion is required to be withheld pursuant to Section 1446 of the Code and such amount shall be deemed to have been paid for all purposes of the Agreement. (b) Each of the Series 1999-2 Certificateholders agrees that prior to the date on which the first interest payment hereunder is due thereto, it will provide to the Servicer and the Trustee (i) if such Series 1999-2 Certificateholder is incorporated or organized under the laws of a jurisdiction outside the United States, two duly completed copies of the United States Internal Revenue Service Form 4224 or successor applicable or required forms, (ii) if the Transferor so requests, a duly completed copy of United States Internal Revenue Service Form W-9 or successor applicable or required forms, and (iii) such other forms and information as the Transferor may reasonably request to confirm the availability of any applicable exemption from United States federal, state or local withholding taxes. Each Series 1999-2 Certificateholder agrees to provide to the Servicer and Trustee, like additional subsequent duly completed forms satisfactory to the Servicer and Trustee on or before the date that any such form expires or becomes obsolete, or upon the occurrence of any event requiring an amendment, resubmission or change in the most recent form previously delivered by it, and to provide such extensions or renewals as may be reasonably requested by the Servicer or Trustee. Each Series 1999-2 Certificateholder certifies, represents and warrants that as of the date of this Agreement, or in the case of a Series 1999-2 Certificateholder which is an assignee as of the date of such Certificate Assignment, that (i) it is entitled (x) to receive payments under this Agreement without deduction or withholding of any United States federal income taxes (other than taxes "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 33 33 required to be withheld pursuant to Section 1446 of the Code) and (y) to an exemption from United States backup withholding tax and (ii) it will pay any taxes attributable to its ownership of an interest in the Certificates. (c) Each Series 1999-2 Certificateholder agrees with the Transferor that: (a) such Series 1999-2 Certificateholder will deliver to the Transferor on or before the Closing Date or the effective date of any participation or Certificate Assignment an Investment Letter, executed by such assignee Series 1999-2 Certificateholder, in the case of a Certificate Assignment, or by the Participant, in the case of a participation, with respect to the purchase by such Series 1999-2 Certificateholder or Participant of a portion of an interest relating to the Investor Certificate and (b) all of the statements made by such Series 1999-2 Certificateholder in its Investment Letter shall be true and correct as of the date made. (d) Each Series 1999-2 Certificateholder, by its holding of an interest in the Investor Certificates, hereby severally represents, warrants and covenants, and each Series 1999-2 Certificateholder that acquires an interest in the Investor Certificates by Certificate Assignment shall be deemed to have severally represented, warranted and covenanted upon such Certificate Assignment that: (i) such Series 1999-2 Certificateholder has not acquired and shall not sell, trade or transfer any interest in the Investor Certificates, nor cause any interest in the Investor Certificates to be marketed, on or through either (A) an "established securities market" within the meaning of Section 7704(b)(1) of the Code (including an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise) or (B) a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704(b)(2) of the Code (including a market wherein interests in the Investor Certificates are regularly quoted by any person making a market in such interests and a market wherein any person regularly makes available bid or offer quotes with respect to interests in the Investor Certificates and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others), and (ii) unless the Transferor consents otherwise, such Series 1999-2 Certificateholder (A) is properly classified as, and shall remain classified as, a "corporation" as described in Section 7701(a)(3) of the Code and (B) is not, and shall not become, an "S corporation" as described in Section 1361 of the Code. In the event of any breach of the representation, warranty and covenant of an Series 1999-2 Certificateholder or its Participant that such Series 1999-2 Certificateholder or participant shall remain classified as a corporation other than an S corporation, such Series 1999-2 Certificateholder shall notify the Transferor promptly upon such Series 1999-2 Certificateholder's becoming aware of such breach, and thereupon the Series 1999-2 Certificateholder hereby agrees to use reasonable efforts to procure a replacement investor which is acceptable to the Transferor not so affected to replace such affected Series 1999-2 Certificateholder. In any such event, the Transferor shall also have the right to procure a replacement investor. Each affected Series 1999-2 Certificateholder hereby agrees to take all actions necessary to permit a replacement investor to succeed to its rights and obligations hereunder. Each Series 1999-2 Certificateholder which has a Participant which has breached its representation, warranty and covenant that it shall remain classified as a corporation other than 34 34 an S corporation hereby agrees (without limiting the right of the Transferor to procure a replacement investor for such Series 1999-2 Certificateholder as provided above in this paragraph) to notify the Transferor of such breach promptly upon such Series 1999-2 Certificateholder's becoming aware thereof and to use reasonable efforts to procure a replacement Participant, as applicable, not so affected which is acceptable to the Transferor to replace any such Participant. (e) Subject to the provisions of subsection 9.04(a), each Series 1999-2 Certificateholder may at any time sell, assign or otherwise transfer, to the extent of such Series 1999-2 Certificateholder's interest in the Investor Certificates (each, a "Certificate Assignment"), to (i) any Permitted Assignee, the Administrative Agent or the Purchaser or (ii) any other Person to which the Transferor may consent, which consent shall not be unreasonably withheld (it being understood that such consent shall be considered to be withheld reasonably on the basis that following such proposed Certificate Assignment the number of Private Holders would exceed 80 or otherwise cause the Trust to be in jeopardy of being treated as taxable as a publicly traded partnership pursuant to Section 7704 of the Code) (upon such Certificate Assignment, a "Series 1999-2 Certificateholder") all or part of its interest in the Investor Certificates; provided, however, that any Certificate Assignment shall be void unless (i) the minimum amount of such Certificate Assignment shall be $5,000,000, (ii) such assignee Series 1999-2 Certificateholder shall comply with this Section 9.08 and shall have delivered to the Trustee, prior to the effectiveness of such Certificate Assignment, a copy of an agreement under which such assignee Series 1999-2 Certificateholder has made the representations, warranties and covenants required to be made pursuant to this Section 9.08, (iii) there shall not be, in the aggregate, more than [*] Certificateholders and Partial Participants after giving effect to such Assignment, and (iv) such proposed assignee shall provide the forms described in (i), (ii) and (iii) of subsection 9.08(b) (subject to the Transferor's consent, as applicable and as set forth therein) in the manner described therein. In connection with any Certificate Assignment to a Person other than a Permitted Assignee, the Administrative Agent or the Purchaser, the assignor Series 1999-2 Certificateholder shall request in writing to the Trustee (who shall promptly deliver it to the Transferor) for the consent of the Transferor (the Transferor shall respond to any such request within ten Business Days after its receipt and the Transferor will not unreasonably withhold such consent) it being understood that the obtaining of such consent is a condition to the effectiveness of such a Certificate Assignment. Each assignee Series 1999-2 Certificateholder is subject to the terms and conditions of subsection 9.08(b) on an ongoing basis and hereby makes the certifications, representations and warranties contained therein, and the assigning Series 1999-2 Certificateholder hereby certifies, represents and warrants that its assignee's certifications, representations and warranties thereunder are true. (f) Subject to the provisions of subsection 9.04(a), any Series 1999-2 Certificateholder may at any time grant a participation in all or part (but not less than $5,000,000) of its interest in Investor Certificates to (i) any Permitted Assignee, the Administrative Agent or the Purchaser or (ii) any other Person to which the Transferor may consent, which consent shall not be unreasonably withheld (it being understood that such consent "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 35 35 shall be considered to be withheld reasonably on the basis that following such proposed participation the number of Private Holders would exceed 80 or otherwise cause the Trust to be in jeopardy of being treated as taxable as a publicly traded partnership pursuant to Section 7704 of the Code) (each such Permitted Assignee, the Administrative Agent, the Purchaser and each such other Person, a "Participant" and each Participant acquiring a participation in less than all of a Certificateholder's rights with respect to payments due thereunder, a "Partial Participant"); provided, however, that such participation shall be void, unless (i) such Participant complies with the applicable provisions of this Section 9.08, (ii) there shall not be, in the aggregate, more than [*] Certificateholders and Partial Participants after giving effect to such participation, and (iii) such Series 1999-2 Certificateholder delivers to the Trustee, prior to the effectiveness of its participation, a copy of an agreement under which such Participant has made the representations, warranties and covenants required to be made pursuant to this Section. In connection with the granting of any such participation to any Person other than to a Permitted Assignee, the Administrative Agent or the Purchaser, the granting Series 1999-2 Certificateholder shall provide a written request to the Trustee (who shall promptly deliver it to the Transferor) for the consent of the Transferor to the granting of the specified interest to any identified prospective Participant, the Transferor shall respond to any such request within ten Business Days after its receipt, it being understood that the obtaining of such consent is a condition to the effectiveness of such a participation. Each Series 1999-2 Certificateholder hereby acknowledges and agrees that any such participation will not alter or affect in any way whatsoever such Series 1999-2 Certificateholder's direct obligations hereunder and that the Transferor shall have no obligation to have any communication or relationship whatsoever with any Participant of such Series 1999-2 Certificateholder in order to enforce the obligations of such Series 1999-2 Certificateholder hereunder. Each Series 1999-2 Certificateholder shall promptly notify the Trustee (which shall promptly notify the Transferor) in writing of the identity and interest of each Participant upon any such disposition. In granting any participation, the Series 1999-2 Certificateholder certifies, represents and warrants that (i) such Participant is entitled to (x) receive payments with respect to its participation without deduction or withholding of any United States federal income taxes and (y) an exemption from United States backup withholding tax, (ii) prior to the date on which the first interest payment is due to the Participant, such Series 1999-2 Certificateholder will provide to the Servicer and Trustee, the forms described in (i), (ii) and (iii) of subsection 9.08(b) (subject to the Transferor's consent, as applicable and as set forth therein) as though the Participant were a Series 1999-2 Certificateholder, and (iii) such Series 1999-2 Certificateholder similarly will provide subsequent forms as described in subsection 9.08(b) with respect to such Participant as though it were a Series 1999-2 Certificateholder. (g) Any holder of an interest in the Trust acquired pursuant to Section 12.01(b) of the Agreement in respect of the Series 1999-2 Certificates shall be required to represent and covenant in connection with such acquisition that (x) it has neither acquired, nor will it sell, trade or transfer any interest in the Trust or cause any interest in the Trust to be marketed on or through either (i) an "established securities market" within the meaning of Code section 7704(b)(1), including without limitation an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 36 36 otherwise or (ii) a "secondary market (or the substantial equivalent thereof)" within the meaning of Code section 7704(b)(2), including a market wherein interests in the Trust are regularly quoted by any person making a market in such interests and a market wherein any person regularly makes available to the public bid or offer quotes with respect to interests in the Trust and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others, (y) unless the Transferor consents otherwise (which consent shall be based on an Opinion of Counsel generally to the effect that the action taken pursuant to the consent will not cause the Trust to become a publicly traded partnership treated as a corporation), such holder (i) is properly classified as, and will remain classified as, a "corporation" as described in Code section 7701(a)(3) and (ii) is not, and will not become, an S corporation as described in Code section 1361, and (z) it will (i) cause any participant with respect to such interest otherwise permitted hereunder to make similar representations and covenants for the benefit of the Transferor and the Trust and (ii) forward a copy of such representations and covenants to the Trustee. Each such holder shall further agree in connection with its acquisition of such interest that, in the event of any breach of its (or its participant's) representation and covenant that it (or its participant) is and shall remain classified as a corporation other than an S corporation, the Transferor shall have the right to procure a replacement investor to replace such holder (or its participant), and further that such holder shall take all actions necessary to permit such replacement investor to succeed to its rights and obligations as a holder (or to the rights of its participant). [Signature Page to Follow] 37 37 IN WITNESS WHEREOF, the undersigned have caused this Supplement to be duly executed and delivered by their respective duly authorized officers on the day and year first above written. NEXTCARD FUNDING CORP., as Transferor By: /s/ John V. Hashman ------------------------------ Name: John V. Hashman Title: Chief Financial Officer NEXTCARD, INC., as Servicer By: /s/ John V. Hashman ------------------------------ Name: John V. Hashman Title: Chief Financial Officer THE BANK OF NEW YORK, as Trustee By: /s/ Kimberly Gilfoil ------------------------------ Name: Kimberly Gilfoil Title: Assistant Treasurer [Signature Page to Series 1999-2 Supplement] 38 38 EX-10.4 5 AMENDED AND RESTATED ACCOUNT ORIGINATION AGREEMENT 1 EXECUTION COPY EXHIBIT 10.4 AMENDED AND RESTATED ACCOUNT ORIGINATION AGREEMENT This AMENDED AND RESTATED ACCOUNT ORIGINATION AGREEMENT ("Agreement") is made as of this 21st day of May, 1999, by and between NEXTCARD, INC., a Delaware corporation ("NextCard") (as successor to NextCard, Inc., a California corporation), NEXTCARD FUNDING CORP., a Delaware corporation ("Funding"), and HERITAGE BANK OF COMMERCE, a California state-chartered bank (the "Bank"). W I T N E S S E T H: WHEREAS, NextCard, Funding and the Bank are parties to that certain Account Origination Agreement dated as of December 29, 1998 (the "Original Agreement") and desire to amend and restate the Original Agreement as specified herein; and WHEREAS, the Bank is a licensed member of Visa, U.S.A., Inc. ("Visa") and authorized to issue credit cards; NOW, THEREFORE, in consideration of the premises and mutual covenants included in this Agreement and for other goods and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, NextCard, Funding and the Bank agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Capitalized terms have the meanings indicated below. "ACCOUNT" means an open-end, revolving Visa account opened by the Bank pursuant to the Program on and after November 16, 1998, pursuant to which one or more Credit Cards are 2 issued to a Cardholder, including any and all rights, remedies, benefits, interests and entitlements with respect thereto. "BANK MARKS" has the meaning specified in Section 3.1(c). "CARDHOLDER" means an individual in whose name an Account is established. "CARDHOLDER AGREEMENT" means an agreement between the Bank and a Cardholder for the extension of credit in connection with an Account. "CARDHOLDER-SPECIFIC INFORMATION" means Cardholder names, postal and electronic mail addresses, telephone numbers and Cardholder-specific transaction information. "CONFIDENTIAL INFORMATION" has the meaning specified in Section 3.4. "CREDIT CARD" or "CARD" means each Visa card issued by the Bank pursuant to this Agreement. "CREDIT CARD GUIDELINES" means the Credit Card Guidelines attached hereto as Exhibit A, as amended from time to time with the prior approval of NextCard and the Bank. "EVENT OF DEFAULT" has the meaning specified in Section 6.2(a). "FEDERAL FUNDS RATE" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") for such day, and if none is set forth for such day, the rate set forth for the preceding Business Day, in each case opposite the caption "Federal Funds (Effective)". "EXTENSION FEE" has the meaning specified in Section 6.1(a). "INDEMNIFIED PARTY" has the meaning specified in Section 7.4. "INDEMNIFYING PARTY" has the meaning specified in Section 7.4. 2 3 "INITIAL AGREEMENT" means that certain Consumer Credit Card Program Agreement dated November 25, 1997 between NextCard and the Bank. "INITIAL TERM" has the meaning specified in Section 6.1. "LOSSES" has the meaning specified in Section 7.3. "NEXTCARD MARKS" has the meaning specified in Section 3.1(a). "PROGRAM" means the credit card program conducted pursuant to the terms of this Agreement and specifically excludes the program conducted pursuant to the Initial Agreement. "PROGRAM INFORMATION" means all information, other than Cardholder-Specific Information, acquired through the operation of this Agreement or concerning the Accounts. Program Information includes Cardholder-Specific Information to the extent that the Cardholder-Specific Information is redacted to mask any correlation between the Cardholder-Specific Information and the identity of any specific Cardholder. "PROGRAM MATERIALS" means any applications, marketing materials, advertising, Web sites and content, disclosures, Account agreements, Account statements, billing and collection notices used in connection with the Program, as developed by NextCard from time to time. "PURCHASE PRICE" means, as of any day with respect to any Receivables, (a) the sum of [*] minus (b) any credits and payments to the related Accounts. "RECEIVABLES" means all amounts owing to the Bank on the Accounts including, without limitation, principal balances from outstanding purchases, balance transfers and cash advances, accrued finance charges, late charges, returned check charges, interchange income and any other charges and fees, whether or not billed, as of the close of business on a given day. "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 3 4 "SETTLEMENT AMOUNT" means, as of any day with respect to any Receivables, (a) the Purchase Price of such Receivables minus (b) the amount of any fees, charges or other income, including amounts payable to Funding pursuant to Section 2.11, paid by other parties with respect to the Receivables, all of which are payable to Funding hereunder, to the extent not previously netted out of a Settlement Amount. "SETTLEMENT DATE" shall have the meaning specified in Section 4.1(a). "THIRD PARTY PROCESSOR" means any third party providing any data processing services with respect to the Accounts or the Receivables. 1.2 Construction. Unless the context otherwise clearly indicates, words used in the singular include the plural and words used in the plural include the singular. ARTICLE II ESTABLISHMENT OF ACCOUNTS 2.1 Solicitation of Accounts. (a) NextCard shall have the sole and exclusive right to solicit applications for Credit Cards on behalf of the Bank. (b) NextCard will use the Internet to solicit potential applicants to submit applications to open Accounts. NextCard's Internet marketing activities may include, in NextCard's discretion, targeted e-mail solicitations, banner advertising, hyperlinks and agreements with other sites and companies on the Internet. The Accounts and Cards will include Internet-enhanced features, including online approval, online balance transfers and online customer service. NextCard may from time to time implement additional Internet-enhanced features. 4 5 (c) All advertising and marketing materials will indicate that the Bank is the issuer of Cards and the party with whom the Accounts are maintained. (d) NextCard does not warrant or guarantee that it will generate any particular number of Accounts or amount of Receivables. 2.2 Applications. (a) NextCard shall ensure that the form of the application for a Credit Card and all other Program Materials, including without limitation solicitation materials, are in compliance with all material applicable laws and regulations. (b) In the event that an applicant for a Card does not satisfy the requirements of the Credit Card Guidelines, NextCard shall notify the applicant in accordance with applicable laws and regulations. 2.3 Issuance of Credit Cards. So long as no Event of Default shall have occurred, the Bank shall issue Credit Cards to each applicant for a Card who qualifies for such type of Card under the Credit Card Guidelines and such underwriting algorithms as are approved in writing by the Bank and NextCard from time to time. Subject to Section 6.4 hereof, the Bank shall extend credit with respect to such Credit Cards in accordance with the Credit Card Guidelines. NextCard shall design and provide the Credit Cards in forms consistent with Visa guidelines. NextCard, on behalf of the Bank, shall automatically issue a renewal card to each qualified Cardholder at each scheduled Credit Card renewal date. 2.4 Establishment of Accounts. (a) Upon approval of an application, the Bank shall establish an Account for the applicant. 5 6 (b) NextCard shall prepare and provide, or cause to be provided to each Cardholder a Cardholder Agreement and disclosure statement and such other notices or documents related to such Cardholder's Account as are required from time to time under applicable laws and regulations. 2.5 Account Terms. Certain terms and conditions for the Credit Cards applicable to the Accounts are set out in the Credit Card Guidelines. NextCard shall ensure that the Credit Card Guidelines and the other terms and conditions for the Credit Cards (including, without limitation, the interest rates, fees, charges and disclosures) are in compliance with all material applicable laws and regulations. 2.6 Servicing. NextCard shall be responsible for servicing and maintaining the Accounts, processing payments thereon and collections efforts with respect thereto, either by itself or through Third Party Processors. Such servicing shall include maintaining a customer service website, maintaining all communications with Cardholders and modifying the terms and conditions of any Account. All costs relating to servicing the Accounts shall be paid by NextCard. 2.7 Other Bank Obligations (a) Visa Membership. The Bank shall maintain its membership in Visa. The Bank shall be responsible for making all reports to Visa which may be required by its membership therein and shall comply with the operating rules and regulations of Visa in connection with the Program. Any termination of the Bank's membership in Visa shall be grounds for termination of this Agreement pursuant to Section 6.2(b). (b) Board Approval. This Agreement and all sales of Receivables and 6 7 Accounts pursuant to this Agreement shall be approved by the Board of Directors of the Bank and such approval is or will be reflected in the minutes of the Board of Directors. The Bank shall provide copies of such resolutions of the Board of Directors, certified by the Secretary or other officer of the Bank, as may be reasonably requested by NextCard. The Bank shall maintain such resolutions in its permanent official records continuously from the time of their adoption. (c) Other Requirements. The Bank shall comply with all regulatory and administrative requirements applicable to it, and shall be solely responsible for its Community Reinvestment Act compliance requirements as they relate to the Program. (d) Opinion. Prior to the effectiveness of this Agreement, the Bank shall deliver to Funding, NextCard and any provider of financing for the Receivables an opinion of counsel substantially in the form set forth on Exhibit B. (e) Recordkeeping. The Bank shall maintain adequate and sufficient records so that at all times it is possible to distinguish the Accounts from any other credit card accounts owned or serviced by the Bank. (f) UCC-1 Financing Statement. The Bank shall execute and deliver to Funding for filing with the California Secretary of State a UCC-1 financing statement evidencing the sale of Receivables to Funding pursuant to this Agreement. 2.8 Reports, Information and Materials. (a) NextCard shall provide to the Bank periodic reports (through Third Party Processors or otherwise) as the Bank may reasonably request from time to time. (b) NextCard shall furnish to the Bank all information concerning the Accounts as may be required by law or necessary to enable to the Bank to satisfy its obligations 7 8 under this Agreement. NextCard will cooperate with the Bank in connection with any regulatory examination or audit of the Program. (c) NextCard shall not change the Credit Card Guidelines or the Program Materials without the prior written consent of the Bank. 2.9 Expenses. NextCard agrees to reimburse the Bank for (a) out-of-pocket expenses incurred in the maintenance of the Program, including, if the Bank is not already a member of Visa, the costs associated with the Bank becoming and maintaining a membership in Visa, (b) any taxes payable by the Bank resulting from the sale of Receivables other than income taxes, (c) the funding costs relating to the Receivables prior to their purchase pursuant to this Agreement at the Federal Funds Rate or such other rate as may be agreed to by NextCard and the Bank and (d) reasonable legal fees not to exceed $12,500 in connection with this Amended and Restated Account Origination Agreement. 2.10 Origination Fees. NextCard shall pay to the Bank on a monthly basis a one-time fee of [*] for each Account that is (a) booked on the system of the Third Party Processor that books Accounts and (b) sold on NextCard's system on or after January 1, 1999. Such payments shall be made no later than the fifteenth day of each calendar month for all Accounts opened during the preceding calendar month. If by September 30, 1999 NextCard has not paid the Bank at least [*] pursuant to this Section 2.10, NextCard shall pay to the Bank the difference between [*] and the actual amount paid by NextCard to the Bank pursuant to this Section 2.10. This obligation will survive any earlier termination of this Agreement pursuant to Section 6.2(d). 2.11 Visa Revenues. Any rebates, marketing fees, revenues or other fees or discounts "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 8 9 that are paid or granted by Visa to the Bank with respect to the Accounts shall be paid over to Funding upon receipt by the Bank on a daily basis as additional consideration under this Agreement. 2.12 Nature of Arrangement. During the term of this Agreement NextCard shall be the exclusive fee-for-origination credit card originator for the Bank. NextCard may enter into other fee-for-origination agreements with other financial institutions. 2.13 Minimum Account Allocation. If between the period from February 1, 1999 and September 30, 1999 NextCard enters into other fee-for-origination agreements with other financial institutions, NextCard shall nonetheless ensure that at least [*] of the Accounts originated on a monthly basis through a NextCard program during such period are established by the Bank; provided, however, that this Section 2.13 shall not be applicable to any Accounts established by a wholly-owned subsidiary of NextCard. Furthermore, the Bank will be the exclusive originator of NextCard accounts during the period from January 1, 1999 to and including January 31, 1999. 2.14 Clearing Accounts. The Bank shall maintain cash clearing accounts necessary to settle amounts paid and received on the Accounts prior to their posting on the system of the Third Party Processor. NextCard shall reimburse the Bank for its reasonable costs relating to such cash clearing accounts. 2.15 Marketing to Cardholders. NextCard may from time to time solicit Cardholders for goods and services and place solicitation or promotional materials in communications to Cardholders, and any income and fees resulting from the foregoing solicitations and promotions shall be paid directly to NextCard. The Bank shall not solicit Cardholders, other than any "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 9 10 Cardholder that was a customer of the Bank prior to the date of this Agreement or a Cardholder that has a relationship with the Bank that develops or was developed independently of the Program, for any purpose. ARTICLE III INTELLECTUAL PROPERTY 3.1 Trademarks. (a) The Bank acknowledges that, as between NextCard and the Bank, NextCard owns and will own the service marks "NextBank," "NextCard," "Credit Choice," and derivatives of the foregoing, and any other presently existing or future trademarks, service marks, trade names, rights in packaging, rights of publicity, merchandising rights, advertising rights, and similar rights by which the Program is or becomes known or with which the Program is or becomes associated, other than the mark "Heritage" and derivatives thereof (collectively, the "NextCard Marks"). (b) The Bank acknowledges that, as between NextCard and the Bank, NextCard owns all rights in the URL addresses used in conjunction with the Program, including without limitation "nextcard.com," "NextBank.com," and "creditchoice.com." (c) NextCard acknowledges that, as between NextCard and the Bank, the Bank owns the service mark "Heritage" and derivatives thereof (collectively, the "Bank Marks"). (d) All goodwill that is or becomes associated with the above-referenced marks as a result of the use of such marks in association with the Program will accrue solely to the benefit of the respective owner of such marks. After termination of this Agreement, any party may use its marks free of any claim whatsoever of ownership or interest by the other party. 10 11 (e) The Bank hereby licenses to NextCard during the term of this Agreement the use of the "Heritage" mark solely in connection with the performance of its marketing and other obligations hereunder. Specifically for purposes of identifying the Visa card issuer, NextCard may use the "Heritage" mark in any marketing or advertising materials relating to the Program. NextCard will follow the Bank's instructions regarding the appearance, use and display of such mark, subject to any requirements of Visa and any regulatory requirements. (f) NextCard hereby licenses to the Bank during the term of this Agreement the use of the Program Materials and the mark "NextCard" to identify the Card and the Program. The Bank will follow NextCard's instructions regarding the appearance, use, and display of such mark, subject to any requirements of Visa and any regulatory requirements. 3.2 Copyright. NextCard will own all copyrights in all Program Materials and derivative works thereof. 3.3 Ownership and Use of Information. (a) Cardholder-Specific Information will be owned by Heritage. Heritage hereby grants to NextCard a perpetual unrestricted license (i) during the term of this Agreement, to use the Cardholder-Specific Information for Program purposes, including but not limited to the servicing of the Accounts, and (ii) following the termination of this Agreement, unless NextCard purchases the Cardholder-Specific Information pursuant to Section 4.2(b) hereof, to use the Cardholder-Specific Information only for statistical and analytic purposes. (b) NextCard and Heritage will own jointly the Program Information, and each party may use the Program Information for its own purposes; provided, that each party will treat any Program Information in its possession at any time as Confidential Information. 11 12 (c) Heritage and NextCard (i) acknowledge that the Program Information will be used by each of them to create certain analyses and statistical models that may have predictive value beyond the Program, and (ii) agree that such analyses and statistical models will be the sole and exclusive property of the party creating such analyses and statistical models and will be treated as Confidential Information. NextCard represents and warrants to Heritage that no such analyses or statistical models will include information that is identified with any specifically identifiable Cardholder. 3.4 Confidential Information. All material and information supplied by one party to the other party in the course of the negotiation of this Agreement and its performance hereunder, including, but not limited to, information concerning any party's marketing plans, technological developments, objectives and results and financial results are confidential and proprietary to the disclosing party ("Confidential Information"). Confidential Information does not include any information that was (a) known to the receiving party at the time of disclosure or developed independently by such party without violating the terms herein; (b) in the public domain at the time of disclosure or enters the public domain following disclosure through no fault of the receiving party; or (c) disclosed to the receiving party by a third party that is not prohibited by law or agreement from disclosing the same. In particular, the Cardholder-Specific Information and the Program Information shall be deemed Confidential Information owned by NextCard. 3.5 Protection of Confidential Information. Confidential Information shall be used by each party solely in the performance of its obligations pursuant to this Agreement. Each party shall receive Confidential Information in confidence and not disclose Confidential Information to any third party, except as may be necessary to perform its obligations pursuant to this Agreement 12 13 and any agreement relating to the financing of the Receivables and except as may be required by law or agreed upon in writing by the other party; provided, however, that no party may disclose Confidential Information in violation of any confidentiality or privacy guidelines or regulations imposed by federal or state authorities. Each party shall take all reasonable steps to safeguard Confidential Information disclosed to it so as to ensure that no unauthorized person shall have access to any Confidential Information. Each party shall, among other safeguards which it may consider necessary, require its employees, agents, and subcontractors having access to Confidential Information to enter into appropriate confidentiality agreements containing such terms as are necessary to satisfy its obligation herein. Each party shall promptly report to the other party any unauthorized disclosure or use of any Confidential Information of that party of which it becomes aware. Upon request or upon termination of this Agreement, each party shall return to the other party all Confidential Information in its possession or control. No disclosure by a party hereto of Confidential Information of such party shall constitute a grant to the other party of any interest or right whatsoever in such Confidential Information, which shall remain the property solely of the disclosing party. Nothing contained herein shall limit a party's rights to use its Confidential Information in any manner whatsoever. 3.6 Survival. The terms of this Article 3 shall survive the termination of this Agreement; provided, however, that upon the termination of this Agreement each party will discontinue immediately the use of any trade or service marks licensed from the other except to the extent necessary to satisfy their respective obligations under Section 6.4 hereof following the termination of this Agreement. ARTICLE IV 13 14 PURCHASE AND SALE OF RECEIVABLES AND ACCOUNTS 4.1 Purchase and Sale of Receivables. (a) Funding hereby purchases from the Bank, and the Bank hereby sells to Funding, all of the Receivables, whether now in existence or hereafter arising, for the Purchase Price. The Receivables shall be transferred to Funding on a daily basis or such other frequency as may be agreed to by the Bank and Funding. On each day when Receivables are transferred to Funding pursuant to this Agreement (the "Settlement Date"), the Bank shall notify Funding of the Settlement Amount for such day as specified in paragraph (b) below and shall pay to the Bank such Settlement Amount. After the Settlement Date for any Receivables, the Bank shall have no further economic interest in such Receivables. NextCard shall provide Funding and the Bank with a report setting forth the calculation of the Settlement Amount on each Settlement Date. (b) No later than 10:00 a.m., California time, on each Settlement Date, the Bank shall notify Funding of the Settlement Amount due to or owed by Funding or the Bank for such day. Payments due for any day shall be made by the appropriate party by wire transfer no later than 1:00 p.m., California time, unless the Bank is late in providing notice of the Settlement Amount due for any day, in which case the appropriate party shall use all reasonable efforts to send the wire transfer as soon thereafter as possible. (c) In the event that Funding has reason to dispute the accuracy of the Settlement Amount reported by the Bank, Funding shall promptly so notify the Bank. In the event it is determined that either party shall not have remitted to the other party the proper Settlement Amount, such party shall promptly remit to the other party any additional amount due 14 15 the other party, together with interest at the Federal Funds Rate. (d) Subject to Section 6.4 hereof, the Bank shall remain the owner of all Accounts, notwithstanding any sale of any Receivables to Funding under this Section 4.1. Funding shall not be deemed to have assumed any obligations of the Bank with respect to the Accounts by virtue of any purchase of Receivables hereunder. (e) Subject to Section 6.4(b) hereof, the Bank shall not sell any Receivables or any interest therein to any third party without the prior written consent of Funding. (f) The sale of Receivables contemplated herein shall occur upon settlement therefor by or on behalf of Funding and no additional documents shall be required by the parties to effect any such sale. Notwithstanding the foregoing, if, in the reasonable judgment of either party, in connection with any such purchase and sale, any additional instrument, document, or certificate is required to further evidence such purchase and sale, the other party shall execute and deliver any such document. 4.2 Sale of Accounts. (a) Subject to Section 6.4, the Bank shall not sell or transfer any Account created under the Program, or any interest therein, to any third party without the prior written consent of Funding. (b) At any time or from time to time, Funding or its assignee shall have the right, exercisable by providing written notice to the Bank at least thirty (30) business days prior to the settlement date for such purchase, to purchase all of the Accounts and the Cardholder-Specific Information relating thereto then owned by the Bank or to arrange for said purchase by another party. The purchase price for the Accounts shall be ten cents per Account and the 15 16 purchase price for the Cardholder-Specific Information shall be a total of $50. 4.3 Covenants of the Bank. Except as contemplated by this Agreement, the Bank (a) shall not create or suffer to exist any lien, pledge, security interest or other encumbrance on any of the Receivables or Accounts, (b) shall not take any action, or fail to take any action, that could result in the Bank no longer being the exclusive owner of the Accounts and Receivables, (c) shall not take any action, or fail to take any action, that could prevent the Bank from having the absolute right and authority to sell the Accounts and Receivables and (d) unless the Bank shall have provided Funding with at least thirty (30) days prior notice thereof and executed such financing statements and other instruments as Funding reasonably deems necessary or desirable to maintain a perfected interest in the Receivables, shall not move its principal place of business and chief executive office outside the State of California. ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1 Representations and Warranties of the Bank. The Bank hereby represents and warrants to NextCard and Funding as follows: (a) Organization. The Bank is a bank duly organized, validly existing and in good standing under the laws of the State of California. (b) Capacity; Authority; Validity. The Bank has all necessary corporate power and authority to enter into this Agreement and to perform all of the obligations to be performed by it under this Agreement. This Agreement and the consummation by the Bank of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Bank, and this Agreement has been duly executed and delivered by the Bank 16 17 and constitutes the valid and binding obligation of the Bank and is enforceable in accordance with its terms (except as such enforceability may be limited by equitable limitations on the availability of equitable remedies and by bankruptcy and other laws affecting the rights of creditors generally). (c) Conflicts; No Defaults. Neither the execution and delivery of this Agreement by the Bank nor the consummation of the transactions contemplated herein by the Bank will (i) conflict with, result in the breach of, constitute a default under, or accelerate the terms of any contract, instrument or commitment to which the Bank is a party or by which the Bank is bound, (ii) violate the articles of incorporation or bylaws, or any other equivalent organizational document, of the Bank, (iii) result in the creation of any lien, charge or encumbrance upon any of the Accounts or the Receivables (except pursuant to the terms hereof), or (iv) require the consent or approval of any other party to any contract, instrument or commitment to which the Bank is a party or by which it is bound. The Bank is not subject to any agreement with any regulatory authority that would prevent the consummation by the Bank of the transactions contemplated by this Agreement. (d) Litigation. There is no claim, litigation, proceeding, arbitration, investigation or material controversy pending before any governmental agency to which the Bank is a party that adversely affects the ability of the Bank to consummate the transactions contemplated hereby, and, to the best of the Bank's knowledge, no such claim, litigation, proceeding, arbitration, investigation or controversy has been threatened or is contemplated. (e) No Consent, Etc. No consent of any person (including without limitation, any stockholder or creditor of the Bank) and no consent, license, permit or approval or 17 18 authorization or exemption by notice or report to, or registration, filing or declaration with, any governmental authority is required (other than those previously obtained and delivered to NextCard) in connection with the execution or delivery of this Agreement by the Bank, the validity of this Agreement with respect to the Bank, the enforceability of this Agreement against the Bank, the consummation by the Bank of the transactions contemplated hereby, or the performance by the Bank of its obligations hereunder; provided, however, that the Bank makes no representation as to whether any consent from Visa is required. (f) Memberships. The Bank is, and at all times during the term hereof will remain, a member of the Federal Deposit Insurance Corporation and the Visa system. (g) Commercial Matters. (i) This Agreement was undertaken in the ordinary course of business, not in contemplation of insolvency of the Bank, and with no intent to hinder, delay, or defraud the Bank or its creditors; (ii) this Agreement represents a bona fide and arm's length transaction; (iii) Funding is not an insider or affiliate of the Bank; (iv) this Agreement was entered into in return for adequate consideration; (v) this Agreement was entered into before the first transfer of Receivables will be effected pursuant to this Agreement; and (vi) the Bank's principal place of business and chief executive office is located in the State of California. 5.2 Representations and Warranties of NextCard. NextCard hereby represents and warrants to the Bank and Funding as follows: (a) Organization. NextCard is a corporation duly organized, validly existing and in good standing under the laws of the State of California. (b) Capacity; Authority; Validity. NextCard has all necessary corporate power and authority to enter into this Agreement and to perform all of the obligations to be 18 19 performed by it under this Agreement. This Agreement and the consummation by NextCard of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of NextCard, and this Agreement has been duly executed and delivered by NextCard and constitutes the valid and binding obligation of NextCard and is enforceable in accordance with its terms (except as such enforceability may be limited by equitable limitations on the availability of equitable remedies and by bankruptcy and other laws affecting the rights of creditors generally). (c) Conflicts; No Defaults. Neither the execution and delivery of this Agreement by NextCard nor the consummation of the transactions contemplated herein by NextCard will (i) conflict with, result in the breach of, constitute a default under, or accelerate the performance of the terms of any contract, instrument or commitment to which NextCard is a party or by which it is bound, (ii) violate the articles of incorporation or bylaws of NextCard or (iii) require the consent or approval of any other party to any contract, instrument or commitment to which NextCard is a party or by which it is bound. NextCard is not subject to any agreement with any regulatory authority that would prevent the consummation by NextCard of the transactions contemplated by this Agreement. (d) Litigation. There is no claim, litigation, proceeding, arbitration, investigation or material controversy pending before any governmental authority to which NextCard is a party that adversely affects NextCard's ability to consummate the transactions contemplated hereby and, to the best of NextCard's knowledge, no such claim, litigation, proceeding, arbitration, investigation or controversy has been threatened or is contemplated. (e) No Consent, Etc. No consent of any person or entity (including without 19 20 limitation, Visa and any stockholder or creditor of NextCard) and no consent, license, permit or approval or authorization or exemption by notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution or delivery of this Agreement by NextCard, the validity or enforceability of this Agreement against NextCard, the consummation of the transactions contemplated thereby, or the performance by NextCard of its obligations hereunder. (f) Compliance. All terms of the Accounts and the Cardholder Agreements and all Program Materials comply in all material respects with applicable law and regulations. (g) Commercial Matters. (i) This Agreement was undertaken in the ordinary course of business, not in contemplation of insolvency of the Bank, and with no intent to hinder, delay, or defraud the Bank or its creditors; (ii) this Agreement represents a bona fide and arm's length transaction; (iii) this Agreement was entered into in return for adequate consideration; and (iv) this Agreement was entered into before the first transfer of Receivables will be effected pursuant to this Agreement. 5.3 Representations and Warranties of Funding. Funding hereby represents and warrants to the Bank and NextCard as follows: (a) Organization. Funding is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) Capacity; Authority; Validity. Funding has all necessary corporate power and authority to enter into this Agreement and to perform all of the obligations to be performed by it under this Agreement. This Agreement and the consummation by Funding of the transactions contemplated hereby have been duly and validly authorized by all necessary action 20 21 on the part of Funding, and this Agreement has been duly executed and delivered by Funding and constitutes the valid and binding obligation of Funding and is enforceable in accordance with its terms (except as such enforceability may be limited by equitable limitations on the availability of equitable remedies and by bankruptcy and other laws affecting the rights of creditors generally). (c) Conflicts; No Defaults. Neither the execution and delivery of this Agreement by Funding nor the consummation of the transactions contemplated herein by Funding will (i) conflict with, result in the breach of, constitute a default under, or accelerate the performance of the terms of any contract, instrument or commitment to which Funding is a party or by which it is bound, (ii) violate the articles of incorporation or bylaws of Funding or (iii) require the consent or approval of any other party to any contract, instrument or commitment to which Funding is a party or by which it is bound. Funding is not subject to any agreement with any regulatory authority that would prevent the consummation by Funding of the transactions contemplated by this Agreement. (d) Litigation. There is no claim, litigation, proceeding, arbitration, investigation or controversy pending before any governmental authority to which Funding is a party that adversely affects Funding's ability to consummate the transactions contemplated hereby and, to the best of Funding's knowledge, no such claim, litigation, proceeding, arbitration, investigation or controversy has been threatened or is contemplated. (e) No Consent, Etc. No consent of any person (including without limitation, any stockholder or creditor of Funding) and no consent, license, permit or approval or authorization or exemption by notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution or delivery of this 21 22 Agreement by Funding, the validity or enforceability of this Agreement against Funding, the consummation of the transactions contemplated thereby, or the performance by Funding of its obligations hereunder. (f) Ability to Finance Purchases. Funding shall at all times maintain a credit facility sufficient to finance its obligation to purchase Receivables hereunder. (g) Commercial Matters. (i) This Agreement was undertaken in the ordinary course of business, not in contemplation of insolvency of the Bank, and with no intent to hinder, delay, or defraud the Bank or its creditors; (ii) this Agreement represents a bona fide and arm's length transaction; (iii) Funding is not an insider or affiliate of the Bank; (iv) this Agreement was entered into in return for adequate consideration; and (v) this Agreement was entered into before the first transfer of Receivables will be effected pursuant to this Agreement. (h) Manner of Foreclosure. Funding will not attempt to foreclose on the Receivables or the proceeds thereof after the appointment of the Federal Deposit Insurance Corporation (the "FDIC") as conservator or receiver for the Bank (i) in a manner that is not commercially reasonable, (ii) in a manner that requires the involvement of the FDIC, (iii) in a manner that requires judicial action, (iv) without the existence of an event of default other than the appointment of a conservator or receiver for the Bank or the insolvency of the Bank, or (v) in a manner that does not comply with any applicable law (not including the receivership and conservatorship provisions of the Federal Deposit Insurance Act, as amended). ARTICLE VI TERM AND TERMINATION 6.1 Term. This Agreement shall commence on the date first above written and, unless 22 23 otherwise terminated as provided in Section 6.2 herein, shall continue in full force and effect until December 31, 1999 (the "Initial Term"), provided, however, that the Bank's obligation to establish new Accounts and the related obligation of NextCard to solicit new Accounts shall terminate on September 30, 1999. After the Initial Term, subject to Section 6.4, this Agreement may be extended at the written request of Funding for one month periods until December 31, 2001 upon the payment by Funding of an extension fee equal to [*] per month (the "Extension Fee"). The Extension Fee for each month shall be payable upon the first day of such month. In addition, Funding shall pay the Bank a fee of [*] per month for each calendar month this Agreement is in effect during the period from October 1, 1999 through and including December 31, 1999. The termination of this Agreement shall not terminate, affect or impair any rights, obligations or liabilities of any party hereto that may accrue prior to such termination or that, under the terms of this Agreement, continue after the termination or otherwise affect the rights and obligations of the parties hereunder except as provided in this Article VI. 6.2 Termination. Subject to Section 6.4, any party to this Agreement may terminate this Agreement, reserving all other remedies and rights hereunder in whole or in part, under the following conditions: (a) Event of Default. Subject to Section 6.4, upon the occurrence of an Event of Default, a nondefaulting party may terminate this Agreement by giving fifteen (15) days' written notice to the defaulting party of its intent to terminate this Agreement. For purposes of this Agreement, an "Event of Default" hereunder shall occur in the event any party defaults in the performance of any of its material duties or obligations under this Agreement and fails to correct the default, to the reasonable satisfaction of the other party, within a thirty (30) day cure period "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 23 24 commencing upon receipt of notice from the other party. (b) Bankruptcy. Subject to Section 6.4, any party may terminate this Agreement, at any time upon notice to the other parties, after the filing by any other party of any petition in bankruptcy or for reorganization or debt consolidation under the federal bankruptcy laws or under any comparable law, or upon any other party's making of an assignment of its assets for the benefit of creditors, or upon the application of any other party for the appointment of a receiver or trustee of its assets. (c) Changes in Laws or Regulations. This Agreement may be terminated by any party on or after the ninetieth (90th) day following the giving of notice by such party that such party's performance is rendered (through no act or omission of such party) illegal or impermissible for that party due to changes in laws or regulations applicable to the terminating party or a determination by a governmental authority having jurisdiction over such party. (d) Accounts Purchased. This Agreement may be terminated immediately upon the purchase by NextCard, Funding or any assignee of all the Accounts pursuant to Article IV. 6.3 Duties After Termination. Upon termination of this Agreement, in order to preserve the goodwill of Cardholders, both parties shall cooperate in order to ensure a smooth and orderly termination of their relationship and a transition of Accounts. The Bank shall transfer to NextCard or any successor or assignee all books and records relating to the Accounts and Receivables in its possession, subject to any regulatory obligations relating to retaining duplicate books and records, and each party shall return all property belonging to the other party that is in its possession or control at the time of termination and shall discontinue the use of and 24 25 return to the other party, or at the request of the other party destroy, all written and printed materials bearing the other party's name and logo. In connection with any termination of this Agreement, the Bank agrees to make reasonable efforts to assist Funding in the orderly transition of the Accounts and Receivables acquired by Funding, including sending to Funding any payments on Accounts that may be received by the Bank after the purchase date. 6.4 Right to Purchase Accounts and Receivables Continues; Duties Upon Termination. (a) NextCard, Funding and their assignees shall have the exclusive right to purchase all Accounts, Cardholder-Specific Information and Receivables pursuant to Article IV hereof for a period of one year from the termination of this Agreement, but not later than December 31, 2001 (the "Exercise Period"). (b) During the Exercise Period, subject to the next sentence, the Bank will fund, and Funding or its assignees will purchase, additional Receivables generated under Accounts originated prior to the Exercise Period in compliance with the terms of this Agreement. If (i) the Extension Fee is not paid when due, (ii) Funding or its assignees fails to purchase Receivables on any day or (iii) the Bank reasonably believes that Funding or its assignees will not have the ability to purchase any Receivables, then the Bank may, subject to compliance with applicable law, (1) cease originating additional Receivables under existing Accounts; (2) reduce outstanding credit limits under the Accounts to the then current balance of the Receivables; (3) close Accounts with zero balances; and/or (4) sell the Accounts, together with the related Receivables. In the event the Bank exercises its rights under clause (4) above, NextCard and Funding shall cooperate in effecting all such sales. Except as otherwise provided in this Section 25 26 6.4(b), the obligations of NextCard, Funding and the Bank, as the case may be, under the second sentence of Section 2.3, Article IV, Section 6.3, this Section 6.4, Article VII and any other provisions of this Agreement that by its terms extends beyond the termination of this Agreement shall remain in full force and effect following the termination of this Agreement. ARTICLE VII INDEMNIFICATION 7.1 NextCard Indemnification. Except to the extent of any Losses that arise from the willful misconduct or gross negligence of the Bank or its directors, officers, employees, agents or affiliates, NextCard shall indemnify and hold harmless the Bank and its respective directors, officers, employees and agents from and against any and all Losses resulting from (a) any failure of NextCard to comply with any of the terms and conditions of this Agreement, (b) any inaccuracy of a representation or warranty made by NextCard herein, (c) any infringement or alleged infringement of any of the NextCard Marks, or the use thereof hereunder, on the rights of any third party, (d) any failure of NextCard to comply, in respect of its obligations in connection with the Program hereunder, with any applicable laws or regulations, including without limitation any consumer lending law or regulation, or (e) any failure of any Program Materials to comply with any applicable laws, including without limitation any consumer lending law or regulation. 7.2 Bank Indemnification. Except to the extent of any Losses that arise from the acts or omissions of NextCard, Funding or their directors, officers, employees, agents or affiliates, the Bank shall indemnify and hold harmless NextCard, Funding and their respective directors, officers, employees, agents and assigns from and against any and all Losses resulting from 26 27 (a) any failure of the Bank to comply with any of the terms and conditions of this Agreement, (b) the inaccuracy of any representation or warranty made by the Bank herein, (c) any infringement or alleged infringement of any of the Bank Credit Card Marks, or the use thereof hereunder, on the rights of any third party, or (d) any failure of the Bank to comply, in respect of its obligations in connection with the Program hereunder, with any applicable laws or regulations. 7.3 Definition of Losses. For the purposes of this Agreement, the term "Losses" shall mean all out-of-pocket costs, damages, losses, fines, penalties, judgments, settlements, and expenses whatsoever, including, without limitation, outside attorneys' fees and disbursements and court costs reasonably incurred by the Indemnified Party. 7.4 Procedures for Indemnification. (a) Notice of Claims. In the event any claim is made or any suit or action is commenced as to which a party (the "Indemnified Party") intends to seek indemnification, the Indemnified Party shall give notice to the party from whom indemnification is sought (the "Indemnifying Party") as promptly as practicable, but, in the case of lawsuit, in no event later than the time necessary to enable the Indemnifying Party to file a timely answer to the complaint. The Indemnified Party shall make available to the Indemnifying Party and its counsel and accountants at reasonable times and for reasonable periods, during normal business hours, all books and records of the Indemnified Party relating to any such possible claim for indemnification, and each party hereunder will render to the other such assistance as it may reasonably require of the other in order to insure prompt and adequate defense of any suit, claim or proceeding based upon a state of facts which may give rise to a right of indemnification 27 28 hereunder. (b) Defense and Counsel. Subject to the terms hereof, the Indemnifying Party shall have the right to defend any suit, claim or proceeding. The Indemnifying Party shall notify the Indemnified Party via facsimile transmission, within ten (10) days of having been notified pursuant to Section 7.4(a) if the Indemnifying Party elects to employ counsel and assume the defense of any such claim, suit or action. The Indemnifying Party shall institute and maintain any such defense diligently and reasonably and shall keep the Indemnified Party fully advised of the status thereof. The Indemnified Party shall have the right to employ its own counsel if the Indemnified Party so elects to assume such defense, but the fees and expense of such counsel shall be at the Indemnified Party's expense. (c) Settlement of Claims. The Indemnifying Party shall have the right to compromise and settle any suit, claim or proceeding in the name of the Indemnified Party. The Indemnifying Party shall be subrogated to any claims or rights of the Indemnified Party as against any other Persons with respect to any amount paid by the Indemnifying Party under this Section 7.4. (d) Indemnification Payments. Amounts owing under Section 7.4 shall be paid promptly upon written demand for indemnification containing in reasonable detail the facts giving rise to such liability, provided, however, that if the Indemnifying Party notifies the Indemnified Party within thirty (30) days of receipt of such demand that it disputes its obligation to indemnify and the parties are not otherwise able to reach agreement, the controversy shall be settled by final judgment entered by a court of competent jurisdiction. 7.5 Survival. The terms of this Article VII shall survive the termination of this 28 29 Agreement for a period of five years. ARTICLE VIII MISCELLANEOUS 8.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its conflict of laws rules. 8.2 Press Releases. No party hereto shall issue a press release or make a public announcement or any disclosure to any third party related to the terms of this Agreement without the prior consent of the other parties hereto unless any such release, announcement or disclosure is required by any applicable law or regulatory authority. 8.3 Relationship of the Parties. The Bank, Funding and NextCard agree that in performing their responsibilities pursuant to this Agreement they are in the position of independent contractors. This Agreement is not intended to create, nor does it create and shall not be construed to create, a relationship of partners or joint ventures or any association for profit among the Bank, Funding and NextCard. 8.4 Force Majeure. In the event that any party fails to perform its obligations under this Agreement in whole or in part as a consequence of events beyond its reasonable control (including, without limitation, acts of God, fire, explosion, public utility failure, accident, floods, embargoes, epidemics, war, nuclear disaster or riot), such failure to perform shall not be considered a breach of this Agreement during the period of such disability. In the event of any force majeure occurrence as set forth in this Section, the disabled party shall use its best effort to meet its obligations as set forth in this Agreement. The disabled party shall promptly and in writing advise the other party if it is unable to perform due to a force majeure event, the expected 29 30 duration of such inability to perform and of any developments (or changes therein) that appear likely to affect the ability of that party to perform any of its obligations hereunder a whole or in part. 8.5 Books and Records. Each party shall maintain books of account and records, in accordance with standard accounting practices and procedures, of all financial transactions arising in connection with its obligations pursuant to this Agreement for a period of not less than five years from the date last recorded or created, and after such time the other party will be offered a reasonable opportunity to take possession of such records at its expense prior to their destruction. In addition to and notwithstanding the foregoing, to the extent any party has sole possession of any records required to be maintained by the other party pursuant to applicable state or federal laws or regulations, the party with possession shall maintain such records in such form and for such time periods as are provided for in such laws and regulations. 8.6 Notices. All notices, requests and approvals required by this Agreement shall be in writing and shall be deemed to have been given upon delivery thereof at the addresses of the parties as follows, or such other address as any party may specify in writing: To Bank: 150 Almaden Blvd. San Jose, CA 95113 Attn: Kenneth B. Silveira, Executive Vice President To NextCard: 595 Market Street, Suite 950 San Francisco, CA 94105 Attn: John Hashman, Chief Financial Officer With a copy to Robert Linderman, Esq., General Counsel To Funding: 595 Market Street, Suite 2250 San Francisco, CA 94105 Attn: John Hashman, Chief Financial Officer With a copy to Robert Linderman, Esq., General Counsel 30 31 8.7 Modification and Changes. This Agreement constitutes the entire agreement among the parties relating to the subject matter herein. This Agreement may only be amended by a written document signed by all parties. 8.8 Assignment. This Agreement and the rights and obligations created under it shall be binding upon and inure solely to the benefit of the parties hereto and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. Except as otherwise provided herein, this Agreement shall not be assigned by any party except with the written consent of each other party hereto. 8.9 Waivers. None of the parties shall be deemed to have waived any of its rights, powers or remedies hereunder unless such waiver is approved in writing by the waiving party. 8.10 Severability. If any provision of this Agreement or portion thereof is held invalid, illegal, void or unenforceable by reason of any rule of law, administrative or judicial provision or public policy, all other provisions of this Agreement shall nevertheless remain in full force and effect. 8.11 Headings. The headings contained herein are for convenience of reference only and are not intended to define, limit, expand or describe the scope or intent of any provision of this Agreement. 8.12 Integration. This Agreement states the entire agreement between the parties with respect to the subject matter hereof, and all prior or contemporaneous written or oral agreements and understandings other than the Initial Agreement are merged herein and superseded hereby. The parties acknowledge that the Initial Agreement remains in full force and effect. 8.13 No Set-Off. The Bank agrees not to set off the obligations of NextCard under the 31 32 Initial Agreement against any payments required to be made to NextCard or Funding under this Agreement. 32 33 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. HERITAGE BANK OF COMMERCE NEXTCARD, INC. By: /s/ Kenneth B. Silveira By: /s/ John V. Hashman ------------------------------- ------------------------------------- Name: Kenneth B. Silveira Name: John V. Hashman Title: Senior Vice President Title: Chief Financial Officer NEXTCARD FUNDING CORP. By: /s/ John V. Hashman ------------------------------- Name: John V. Hashman Title: Chief Financial Officer 33 34 EXHIBIT A - CREDIT CARD GUIDELINES UNDERWRITING APPROVALS FOR ELIGIBLE RECEIVABLES 1. Application Information Decline Criteria a) Certain information must be completed to form a valid application. NextCard will not accept an application that is not considered valid. The information required from the applicant includes items such as the following: - Applicant's first and last name; - Home address; - Social security number; - Date of birth; and - [*] b) Once NextCard receives a valid application, we will review the data and may decline an applicant if they do not meet the following requirements (pre-bureau criteria): - Applicant [*]; or - Applicant [*] c) Excessive applications or accounts per customer and/or household policy. - NextCard will decline an applicant if they exceed the number of allowable accounts per customer and/or household (currently one account per customer). - NextCard may decline an applicant if they have [*]. - NextCard may decline an applicant if they have [*]. 2. Credit Bureau Authentication Review - NextCard requires a certain level of authentication of the bureau files. If this requirement is not met, the applicant will be declined. Currently, NextCard requires a minimum of [*] bureau matches for an application to - ----------------------------- [*] "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." A-34 35 be considered authentic. - Further, if NextCard receives certain alert messages regarding the validity of the bureau file, based on the message received, NextCard will [*] 3. Credit Bureau Underwriting Criteria NextCard approves/declines applicants based upon a combination of their [*], their [*] and, in certain cases, [*] Each of these components is discussed below. a) [*] [*] [*] [*] b) [*] [*] "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." A-35 36 [*] c) [*] "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." A-36 EX-10.5 6 AMEND#1 TO AMENDED & RESTATED ACCT. ORIG. AGMNT 1 EXECUTION VERSION EXHIBIT 10.5 AMENDMENT NO. 1 TO AMENDED AND RESTATED ACCOUNT ORIGINATION AGREEMENT This AMENDMENT NO. 1 TO AMENDED AND RESTATED ACCOUNT ORIGINATION AGREEMENT ("Amendment") is made as of this 15th day of July, 1999, by and among NEXTCARD, INC., a Delaware corporation ("NextCard"), NEXTCARD FUNDING CORP., a Delaware corporation ("Funding"), and HERITAGE BANK OF COMMERCE, a California state-chartered bank (the "Bank"). W I T N E S S E T H: WHEREAS, NextCard, Funding and the Bank are parties to that certain Amended and Restated Account Origination Agreement dated as of May 21, 1999 (the "Agreement") and desire to amend the Agreement as specified herein; and WHEREAS, NextCard and the Bank are parties to that certain Consumer Credit Card Program Agreement dated November 25, 1997 (the "Initial Agreement") and desire to make the receivables and accounts originated under the Initial Agreement subject to the Agreement; WHEREAS, NextCard has previously paid to the Bank [*] for the option to purchase receivables and accounts originated under the Initial Agreement; WHEREAS, the Bank is a licensed member of Visa, U.S.A., Inc. ("Visa") and authorized to issue credit cards; and WHEREAS, each of Barclays Bank PLC and ING Baring (U.S.) Capital Markets LLC have consented to this Amendment. NOW, THEREFORE, in consideration of the premises and mutual covenants included in "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 2 this Amendment and for other goods and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, NextCard, Funding and the Bank agree as follows: SECTION 1. DEFINITIONS a. The following definitions in the Agreement are amended and replaced, to read in their entirety as follows: "ACCOUNT" means an open-end, revolving Visa account opened by the Bank pursuant to the Program, pursuant to which one or more Credit Cards are issued to a Cardholder, including any and all rights, remedies, benefits, interests and entitlements with respect thereto. "EXTENSION FEE" has the meaning specified in Section 6.4(a). "PROGRAM" means the credit card program conducted pursuant to the terms of this Agreement and specifically includes the program conducted pursuant to the Initial Agreement. "PURCHASE PRICE" means, as of any day with respect to any Receivables other than those purchased on the effective date of the Amendment, (a) the sum of [*] minus (b) any credits and payments to the related Accounts. b. The definition of "INITIAL TERM" is hereby deleted. SECTION 2. PURCHASE OF INITIAL AGREEMENT RECEIVABLES a. Purchase of Outstanding Balance. On the date hereof, Funding shall purchase from the Bank and the Bank shall sell to Funding all of the Receivables outstanding as of the preceding Business Day relating to the Accounts originated under the Initial Agreement, including the right to recoveries on charged-off Accounts, for a purchase price equal to [*] "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 2 3 of the outstanding principal amount thereof, other than any amounts relating to charged-off Accounts. b. Subsequent Purchases. After the date hereof, Funding shall purchase from the Bank and the Bank shall sell to Funding Receivables arising under the Accounts originated under the Initial Agreement on the terms specified in the Agreement. c. Amendment to UCC Financing Statement. The Bank shall execute and deliver to Funding for filing with the California Secretary of State an amendment to the UCC-1 financing statement filed in connection with the execution of the Agreement reflecting the terms of this Amendment. SECTION 3. NATURE OF ARRANGEMENT Section 2.12 of the Agreement is amended, to read in its entirety as follows: 2.12 Nature of Arrangement. During the term of this Agreement NextCard shall be the exclusive fee-for-origination credit card originator for the Bank. During the term of this Agreement, NextCard may not enter into other fee for origination agreements with other financial institutions other than NextBank, N.A., unless (a) the Bank has notified NextCard pursuant to Section 6.2(e) that it intends to terminate this Agreement or (b) the Bank does not agree to amend the Credit Card Guidelines as requested by NextCard, in which case NextCard may enter into origination agreements with any other financial institutions to originate accounts upon the terms specified in the proposed amended Credit Card Guidelines that have been rejected by the Bank. SECTION 4. MINIMUM ACCOUNT ALLOCATION 3 4 Section 2.13 of the Agreement is amended, to read in its entirety as follows: 2.13 Minimum Account Allocation. (a) Subject to paragraph (b) below, if between the period from February 1, 1999 and October 31, 1999 NextCard enters into any origination agreement with NextBank, N.A., NextCard shall nonetheless ensure that at least [*] of the Accounts originated on a monthly basis through a NextCard program during such period are established by the Bank. Subject to paragraphs (b) and (c) below, for the period from November 1, 1999 through November 30, 1999, NextCard shall ensure that at least [*] of the Accounts originated on a monthly basis through a NextCard program during such period are established by the Bank, and for the period from December 1, 1999 through the termination of this Agreement, NextCard shall ensure that at least [*] of the Accounts originated on a monthly basis through a NextCard program during such period are established by the Bank. (b) NextCard shall not be required to comply with the provisions of Section 2.13(a) with respect to the minimum percentage of Accounts to be originated by the Bank during the last calendar quarter of 1999 if NextCard has paid to the Bank, either in cash or as origination fee compensation pursuant to Section 2.10 of the Agreement, or any combination thereof, an aggregate of [*] at any time during such last calendar quarter of 1999. (c) The provisions of Section 2.13(a) with respect to the minimum percentage of Accounts to be originated by the Bank shall not apply to accounts originated by any financial institution other than NextBank, N.A., if such financial "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 4 5 institution originates accounts in accordance with the terms of any amendments to the Credit Card Guidelines that have been rejected by the Bank as contemplated by Section 2.12. SECTION 5. TIMING OF RECEIVABLES PURCHASES Pursuant to Section 4.1(a), Funding and the Bank agree that the Receivables shall be transferred to Funding on the fifth Business Day following origination by the Bank or on such other mutually agreeable time as may be agreed to by Funding and the Bank. SECTION 6. SALE OF ACCOUNTS AND OTHER ASSETS Section 4.2(b) of the Agreement is amended, to read in its entirety as follows: (b) Subject to Section 6.4, at any time or from time to time, Funding or its assignee shall have the right, exercisable by providing written notice to the Bank at least thirty (30) business days prior to the settlement date for such purchase, to purchase all of the Accounts, the Cardholder-Specific Information relating thereto and the Program Information then owned by the Bank or to arrange for said purchase by another party. The purchase price for the Accounts shall be ten cents per Account and the purchase price for the Cardholder-Specific Information and the Program Information shall be a total of $50. SECTION 7. CHANGE IN TERM Section 6.1 of the Agreement is amended, to read in its entirety as follows: 6.1 Term. This Agreement shall commence on the date first above written and shall continue until terminated as provided in Section 6.2 herein. The termination of this 5 6 Agreement shall not terminate, affect or impair any rights, obligations or liabilities of any party hereto that may accrue prior to such termination or that, under the terms of this Agreement, continue after the termination or otherwise affect the rights and obligations of the parties hereunder except as provided in this Article VI. SECTION 8. TERMINATION EVENTS The following paragraphs (e), (f) and (g) shall be added to the end of Section 6.2: (e) Notice by the Bank. This Agreement may be terminated by the Bank upon six months prior written notice to NextCard and Funding, provided that such notice is delivered after September 30, 1999. (f) Notice by NextCard or Funding. This Agreement may be terminated by NextCard or Funding upon thirty days prior written notice to the Bank; provided, however, that neither NextCard nor Funding may terminate this Agreement prior to December 31, 1999 unless NextCard has paid to the Bank, either in cash or as origination fee compensation pursuant to Section 2.10 of the Agreement, or any combination thereof, an aggregate of [*] at any time during the last calendar quarter of 1999. (g) Purchase of Accounts. If this Agreement is terminated pursuant to paragraph (e) or (f) above, Funding or its assignee shall purchase all of the Accounts from the Bank pursuant to Section 4.2(b) within thirty days of such termination, and any termination notice shall be deemed to constitute the notice required under Section 4.2(b). This paragraph (g) shall survive the termination of this Agreement. SECTION 9. CHANGE TO EXERCISE PERIOD Section 6.4(a) of the Agreement is amended, to read in its entirety as follows: "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 6 7 (a) NextCard, Funding and their assignees shall have the exclusive right to purchase all Accounts, Cardholder-Specific Information and Receivables pursuant to Article IV hereof for a period of one year from the termination of this Agreement pursuant to Sections 6.1(a), (b) or (c), but not later than December 31, 2001 (the "Exercise Period"). During the Exercise Period, Funding shall pay the Bank a fee of [*] per month (the "Extension Fee") for each calendar month that the Bank continues to fund Receivables pursuant to Section 6.4(b). The Extension Fee shall be payable on the first day of each such month, and shall be pro-rated for any partial months. SECTION 10. MISCELLANEOUS a. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California without regard to its conflict of laws rules. b. Effect of Amendment; Agreement Continues in Effect. On and after the date hereof, all references to the Agreement shall mean the Agreement as amended hereby. Except as specifically amended hereby, the Agreement remains in full force and effect. c. Legal Fees. NextCard agrees to reimburse the Bank for reasonable legal fees not to exceed $15,000 incurred in connection with this Amendment. "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date set forth above. HERITAGE BANK OF COMMERCE NEXTCARD, INC. By: /s/ Kenneth B. Silveira By: /s/ John V. Hashman ------------------------------- ------------------------------------- Name: Kenneth B. Silveira Name: John V. Hashman Title: Executive Vice President Title: Chief Financial Officer NEXTCARD FUNDING CORP. By: /s/ John V. Hashman ------------------------------- Name: John V. Hashman Title: Chief Financial Officer 8 EX-10.6 7 CERTIFICATE PURCHASE AGREEMENT DATED MAY 21, 1999 1 EXHIBIT 10.6 [Execution Copy] ================================================================================ CERTIFICATE PURCHASE AGREEMENT Dated as of May 21, 1999 among NEXTCARD FUNDING CORP., as the Transferor, NEXTCARD, INC., as the Servicer, SHEFFIELD RECEIVABLES CORPORATION, as the Purchaser, and BARCLAYS BANK PLC, as the Agent ================================================================================ 2 TABLE OF CONTENTS
Section Page ARTICLE I DEFINITIONS............................................ 1 SECTION 1.01. Terms Defined in the Supplement and the Pooling and Servicing Agreement; Certain Defined Terms.........................................1 SECTION 1.02. Accounting Terms; Other Terms.............................................11 SECTION 1.03. Other Rules of Construction...............................................11 SECTION 1.04. Computation of Time Periods...............................................11 ARTICLE II PURCHASE AND SALE; PURCHASE COMMITMENT...............................12 SECTION 2.01. Purchase and Sale of the Certificates.....................................12 SECTION 2.02. Purchase Price............................................................12 SECTION 2.03. Increases and Decreases in the Invested Amount............................12 SECTION 2.04. Commitment Fee............................................................13 SECTION 2.05. Termination or Reduction of the Purchase Commitment.......................13 SECTION 2.06. Calculation and Payment of Monthly Interest and Fees; Selection of Commercial Paper Note Maturities.....................................13 SECTION 2.07. Increased Costs...........................................................14 SECTION 2.08. Increased Capital.........................................................16 SECTION 2.09. Taxes.....................................................................17 ARTICLE III CLOSING.............................................21 SECTION 3.01. Closing...................................................................21 SECTION 3.02. Transactions to be Effected at the Closing................................21 ARTICLE IV PURCHASER CONDITIONS PRECEDENT.................................21 SECTION 4.01. Conditions Precedent to the Purchase of the Certificates..................21 SECTION 4.02. Conditions Precedent to Invested Amount Increases.........................23 ARTICLE V TRANSFEROR CONDITIONS PRECEDENT.................................24 SECTION 5.01. Conditions Precedent to the Sale of the Certificates......................24
2 3 Section Page ARTICLE VI REPRESENTATIONS AND WARRANTIES.................................25 SECTION 6.01. Corporate Existence.......................................................25 SECTION 6.02. Corporate Authority.......................................................25
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Section Page - ------- ---- SECTION 6.03. No Consents Required......................................................26 SECTION 6.04. No Violation..............................................................26 SECTION 6.05. Financial Statements......................................................26 SECTION 6.06. No Proceeding.............................................................27 SECTION 6.07. Trust Indenture Act; Investment Company Act...............................27 SECTION 6.08. No Pay Out Event or Other Default.........................................27 SECTION 6.09. The Certificates..........................................................27 SECTION 6.10. Absence of Material Adverse Change........................................28 SECTION 6.11. Taxes, Etc................................................................28 SECTION 6.12. Disclosure................................................................28 SECTION 6.13. Year 2000 Plan............................................................28 SECTION 6.14. FICO Scores...............................................................29 SECTION 6.15. Location of Offices.......................................................29 SECTION 6.16. Pooling and Servicing Representations and Warranties....................................................29 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE AGENT.................................29 SECTION 7.01. Organization..............................................................29 SECTION 7.02. Authority.................................................................29 SECTION 7.03. Securities Act............................................................30 SECTION 7.04. Investment Company Act....................................................30 ARTICLE VIII COVENANTS OF THE TRANSFEROR....................................31 SECTION 8.01. Access to Information.....................................................31 SECTION 8.02. Reporting Requirements of the Transferor..................................31 SECTION 8.03. Optional Repurchase.......................................................32 SECTION 8.04. Termination of the Loan Agreement.........................................32 SECTION 8.05. Location of Chief Executive Office........................................33 ARTICLE IX [RESERVED].............................................33 ARTICLE X INDEMNIFICATION...........................................33 SECTION 10.01. Indemnification by the Transferor and the Servicer.......................33 SECTION 10.02. Costs and Expenses.......................................................34 ARTICLE XI THE AGENT............................................35
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Section Page - ------- ---- SECTION 11.01. Authorization and Action.................................................35 SECTION 11.02. Agent's Reliance, Etc....................................................35 SECTION 11.03. Agent and Affiliates.....................................................36 SECTION 11.04. Purchase Decision........................................................36 SECTION 11.05. Indemnification..........................................................37 SECTION 11.06. Successor Agent..........................................................37 ARTICLE XII MISCELLANEOUS.........................................38 SECTION 12.01. Amendments, Etc..........................................................38 SECTION 12.02. Notices, Etc.............................................................38 SECTION 12.03. No Waiver; Remedies......................................................39 SECTION 12.04. Binding Effect; Assignability............................................40 SECTION 12.05. Certificates as Evidence of Indebtedness.................................42 SECTION 12.06. Governing Law............................................................42 SECTION 12.07. No Proceedings...........................................................42 SECTION 12.08. Execution in Counterparts................................................43 SECTION 12.09. No Recourse..............................................................43 SECTION 12.10. Confidentiality..........................................................44
5 6 CERTIFICATE PURCHASE AGREEMENT dated as of May 21, 1999, among NEXTCARD FUNDING CORP., a Delaware corporation, as the Transferor, NEXTCARD, INC., a Delaware corporation ("NextCard"), as the Servicer, SHEFFIELD RECEIVABLES CORPORATION, a Delaware corporation (the "Purchaser") and BARCLAYS BANK PLC ("Barclays"), as agent (in such capacity, the "Agent") for the Purchaser and the other "Owners" (as defined below). In consideration of the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Terms Defined in the Supplement and the Pooling and Servicing Agreement; Certain Defined Terms. Unless otherwise defined herein, terms defined in the Supplement (as defined below) or the Pooling and Servicing Agreement (as defined below) are used herein with the meanings ascribed to them therein. In addition, as used herein, the following terms shall have the following meanings: "Act" shall mean the Securities Act of 1933. "Additional Amounts" shall mean, for each Interest Period, an amount equal to the sum of (a) the aggregate amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09 in respect of such Interest Period and (b) the aggregate of such amounts with respect to prior Interest Periods which remain unpaid. "Affected Party" shall mean the Purchaser, the Agent, each Liquidity Provider, any permitted assignee of the Purchaser or any Liquidity Provider, any Enhancement Provider and any assignee of any Enhancement Provider or Barclays. "Agreement" shall mean this agreement and any supplements, amendments, exhibits and schedules hereto. "Alternative Rate" shall mean, with respect to any Interest Period (or portion thereof), an interest rate per annum 6 7 equal to the Eurodollar Rate (Reserve Adjusted); provided, however, that: (a) if the Required Owners shall notify the Agent prior to the related rate determination date that a Eurodollar Rate Disruption Event has occurred and is continuing, then the "Alternative Rate" for such Interest Period (or portion thereof) shall be an interest rate per annum equal to the Alternate Base Rate in effect from time to time during such Interest Period (or portion thereof) unless the Agent and the Transferor agree in writing to a different rate; (b) if any Owner shall have notified the Agent on or before the applicable rate determination date that the Eurodollar Rate for any Interest Period (or portion thereof) does not accurately reflect the cost to such Owners of funding their respective investments in the Certificates for such Interest Period (or portion thereof), then the "Alternative Rate" with respect to such Owner's share of the outstanding principal balance of the Certificates for such Interest Period (or portion thereof) shall be an interest rate per annum equal to the Alternate Base Rate in effect from time to time during such Interest Period (or portion thereof) unless the Agent and the Transferor agree in writing to a different rate; (c) if for any reason the Alternative Rate becomes applicable on notice to the Agent of less than three Business Days (determined giving effect to clause (b) of the definition of "Business Day"), the "Alternative Rate" shall be the Alternate Base Rate in effect from time to time during the period prior to the satisfaction of such three Business Days' notice requirement (determined giving effect to clause (b) of the definition of "Business Day"); and (d) notwithstanding anything to the contrary in clauses (a) through (c) above, at all times following the occurrence of a Pay Out Event the "Alternative Rate" for any Interest Period shall be a rate per annum equal to the Alternate Base Rate in effect from time to time during such Interest Period, unless the Agent and the Transferor agree in writing to a different rate. 7 8 "Alternate Base Rate" shall mean, on any date, a fluctuating rate of interest per annum equal to the highest of: (a) the rate of interest most recently announced by Barclays at its branch office in New York, New York as its prime or reference rate; and (b) the Federal Funds Rate plus 0.50%. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by Barclays in connection with extensions of credit. "Barclays" shall have the meaning specified in the preamble hereto. "Breakage Costs" means, for each Owner for each funding period, to the extent that an Owner is funding the maintenance of its investment in the Invested Amount during such funding period through the issuance of Commercial Paper Notes or at the Eurodollar Rate (Reserve Adjusted), during which the amount of such investment is reduced (in whole or in part) prior to the end of the period for which it was originally scheduled to remain outstanding, whether as a result of the commencement of a Limited Amortization Period or otherwise (the amount of such reduced investment being referred to as the "Allocated Amount"), the excess of (a) the discount or interest that would have accrued on the Allocated Amount during the remainder of such funding period if such reduction had not occurred over (b) the income scheduled to be received by such Owner from investing the Allocated Amount for the remainder of such funding period, it being understood that in investing such Allocated Amount such Owner will, but without limitation to its discretion, endeavor to minimize the associated Breakage Costs. "Business Day" shall mean a day that is (a) a "Business Day" under and as defined in the Pooling and Servicing Agreement and (b) when used in connection with the Eurodollar Rate, a day on which dealings in Dollars are carried on in the London interbank market and, if the Eurodollar Rate is being determined pursuant to the second sentence of the definition of "Eurodollar Rate," in the eurodollar interbank market of the Agent's Eurodollar Office. 8 9 "Certificate Rate" shall mean, for any Interest Period, the sum of (a) the Program Fee Rate and (b) Cost of Funds for such Interest Period, adjusted, as necessary, to yield, when applied to the outstanding principal balance of the Certificates, an amount sufficient to pay interest on the incremental effective principal balance of any funding resulting from the capitalization of interest during such Interest Period. On the Business Day immediately preceding each Determination Date, the Agent shall notify the Servicer and the Trustee of the Certificate Rate for the related Interest Period. "Closing" shall have the meaning set forth in Section 3.01. "Closing Date" shall have the meaning set forth in Section 3.01. "Collection Date" shall mean the earliest Business Day following the termination (as opposed to suspension) of the Revolving Period on which the Invested Amount shall have been reduced to zero and all other amounts due to the Owners shall have been paid in full. "Commercial Paper Notes" shall mean short-term promissory notes issued or to be issued by the Purchaser to fund its investments in accounts receivable and other financial assets. "Commitment Fee Rate" shall have the meaning specified in the Fee Letter. "Cost of Funds" shall mean, for any Interest Period, the weighted average (based upon time and dollar amount) of the following rates applicable during such Interest Period for each Owner: (a) to the extent such Owner is the Purchaser and funds its share of the outstanding principal balance of the Certificates for such Interest Period by issuing Commercial Paper 9 10 Notes, a rate equal to the CP Rate for such Interest Period and (b) to the extent such Owner either (i) is not the Purchaser or (ii) is the Purchaser and funds its share of the Invested Amount for such Interest Period other than by issuing Commercial Paper Notes, a rate equal to the Alternative Rate for such Interest Period or such other rate as the Agent and the Transferor shall agree to in writing. "CP Rate" shall mean with respect to any Interest Period (or portion thereof), the per annum rate calculated to yield the "weighted average cost" (as defined below) related to the issuance of Commercial Paper Notes that are allocated, in whole or in part by the Purchaser (or by the Agent) to fund or maintain its interest in the Certificates during such Interest Period (or portion thereof) and all interests in receivables or other financial assets of "Other Pool Transferors" (as defined below), if any, held by the Purchaser; provided, however, that if any component of such rate is a discount rate, in calculating the "CP Rate" for such Interest Period (or portion thereof) the Purchaser shall for such component use the rate resulting from converting such discount rate to an interest-bearing equivalent rate per annum. As used in this definition, (a) the Purchaser's "weighted average cost" for any Interest Period means the sum of (i) the actual interest paid to purchasers of the applicable Commercial Paper Notes, (ii) the commissions of placement agents and dealers in respect of such Commercial Paper Notes; provided, however, that such commissions shall not exceed [*] of the outstanding face amount of such Commercial Paper Notes from time to time unless the Agent shall have provided the Transferor with prior notice that such commissions will exceed such amount, and (iii) other borrowings by the Purchaser (other than under any Liquidity Agreement), including to fund small or odd dollar amounts that are not easily accommodated in the commercial paper market and (b) "Other Pool Transferors" means all other Persons that transfer interests (including security interests) in receivables or other financial assets to the Purchaser to the extent that such interests in receivables or other financial assets are aggregated with the interest of the Purchaser in the Certificates and funded on a pooled basis by the Purchaser; and provided, further, that at all times following the occurrence of "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 10 11 a Pay Out Event, the "CP Rate" for any Interest Period (or portion thereof) shall be the Alternative Rate in effect from time to time. "Dollars" or "$" shall mean lawful money of the United States. "Enhancement Agreement" shall mean and include any agreement (other than any Liquidity Agreement) outstanding from time to time for the benefit of the Purchaser providing for the issuance of one or more letters of credit or surety bonds for the account of the Purchaser, the making of loans to the Purchaser or any other extensions of credit to or for the account of the Purchaser to support all or any part of the Purchaser's payment obligations under its Commercial Paper Notes or to provide an alternate means of funding the Purchaser's investments in accounts receivable or other financial assets, in each case, as amended, supplemented or otherwise modified from time to time. "Enhancement Provider" shall mean and include Barclays and any other or additional bank, financial guaranty insurance company or other financial institution now or hereafter extending credit or having a commitment to extend credit to or for the account of the Purchaser under an Enhancement Agreement so long as such other or additional bank, financial guaranty insurance company or other financial institution is, at the time of each extension of such credit and each incurrence of a commitment to extend such credit either a Permitted Assignee or a Person consented to in writing by the Transferor. "Eurocurrency Liabilities" shall have the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Margin" shall have the meaning specified in the Fee Letter. "Eurodollar Office" shall mean such office or offices through which the Agent determines the Eurodollar Rate. A Eurodollar Office of the Agent may be, at the option of the Agent, either a domestic or foreign office. 11 12 "Eurodollar Rate" shall mean, with respect to any Interest Period (or portion thereof), a per annum rate of interest equal to the rate shown on page 3750 of the Dow Jones & Company Telerate screen or any successor page as the composite offered rate for London interbank deposits for a period approximating such Interest Period (or portion thereof), as shown under the heading "USD" as of 11:00 A.M. (London time) on the second Business Day before (and for value on) the first day of such Interest Period (or portion thereof). In the event no such rate appears, the Eurodollar Rate shall be, with respect to any Interest Period, the per annum rate of interest at which Dollar deposits in immediately available funds are offered to the Eurodollar Office of the Agent by prime banks in the interbank eurodollar market at or about 10:00 a.m., London time, on the second Business Day before (and for value on) the first day of such Interest Period (or portion thereof) and in an amount of not less than $1,000,000 for such Interest Period (or portion thereof). "Eurodollar Rate (Reserve Adjusted)" shall mean, with respect to any Interest Period (or portion thereof), the sum of (a) the Eurodollar Margin and (b) the per annum rate of interest (rounded upward, if necessary, to the nearest whole multiple of 1/16th of one percent per annum) determined by dividing (i) the Eurodollar Rate for such Interest Period (or portion thereof) by (ii) one minus the Eurodollar Reserve Percentage (expressed as a decimal) applicable during such Interest Period (or portion thereof). "Eurodollar Rate Disruption Event" shall mean, for any Owner for any Interest Period, any of the following: (a) a determination by such Owner that it would be contrary to law or to the directive of any central bank or other Governmental Authority to obtain Dollars in the London interbank market to fund or maintain its investment in the Certificates for such Interest Period or (b) the inability of such Owner by reason of circumstances affecting the London interbank market generally, to obtain Dollars in such market to fund its investment in the Certificates for such Interest Period. 12 13 "Eurodollar Reserve Percentage" shall mean, with respect to any Interest Period (or portion thereof), the reserve percentage (rounded upwards, if necessary, to the nearest 1/16th of one percent per annum) applicable during such Interest Period (or portion thereof) (or, if more than one such percentage shall be so applicable during such Interest Period, the daily average of such percentages for those days in such Interest Period (or portion thereof) during which any such percentages shall be in effect) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for banks or other financial institutions subject to such regulations with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period (or portion thereof). "Excluded Taxes" shall have the meaning specified in Section 2.09(a). "Federal Bankruptcy Code" shall mean the bankruptcy code of the United States of America codified in Title 11 of the United States Code. "Federal Funds Rate" shall mean, for any period, a fluctuating per annum interest rate for each day during such period equal to (a) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such no such rate is published for such day because such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by Barclays from three federal funds brokers of recognized standing selected by it. "Fee Letter" shall mean the letter agreement of even date herewith, among the Transferor, NextCard, the Purchaser and 13 14 the Agent, regarding certain fees payable by the Transferor under or in connection with this Agreement, as the same may be amended, restated or otherwise modified from time to time. "Governmental Actions" shall mean any and all consents, approvals, permits, orders, authorizations, waivers, exceptions, variances, exemptions or licenses of, or registrations, declarations or filings with, any Governmental Authority required under any Governmental Rules. "Governmental Rules" shall mean any and all laws, statutes, codes, rules, regulations, ordinances, orders, writs, decrees and injunctions of any Governmental Authority and any and all legally binding conditions, standards, prohibitions, requirements and judgments of any Governmental Authority. "Interpretation" as used in Sections 2.07 and 2.08 hereof with respect to any law or regulation shall mean the interpretation or application of such law or regulation by any Governmental Authority (including, without limitation, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government), central bank, accounting standards board, financial services industry advisory body or any comparable entity. "Liquidity Agreement" shall mean and include (a) the Revolving Asset Purchase Agreement of even date herewith among the Purchaser, Barclays, and the Liquidity Providers supporting the Purchaser's payment obligations with respect to the Commercial Paper Notes issued to fund its purchase or maintenance of the Certificates hereunder, as amended, supplemented or otherwise modified from time to time, and (b) any other agreement outstanding from time to time for the benefit of the Purchaser providing for the sale by the Purchaser of undivided percentage interests in the Certificates or the making of loans or other extensions of credit to support all or part of the Purchaser's payment obligations under the Commercial Paper Notes issued to fund its purchase or maintenance of the Certificates or to provide an alternate means of funding the Purchaser's investment in the Certificates hereunder, and under which the amount 14 15 available from such sale or such extension of credit is limited to an amount calculated by reference to the value or eligible unpaid balance of such Certificates or any portion thereof or the level of credit enhancement available with respect thereto, in each case as amended, supplemented or otherwise modified from time to time. "Liquidity Provider" shall mean a financial institution providing liquidity support to or for the account of the Purchaser pursuant to a Liquidity Agreement, so long as, at the time of each extension of such support and each incurrence of a commitment to extend such support, such financial institution is either a Permitted Assignee or a Person consented to in writing by the Transferor. "Liquidity Reduction Date" shall mean either (a) unless the applicable Liquidity Provider is earlier replaced by the Agent with a commercial bank satisfactory to the Agent having a commercial paper or short-term deposit rating of A-1+ from Standard & Poor's and P1 from Moody's, the latest of (i) the day on which any portion of the commitment of any Liquidity Provider to provide liquidity support to the Purchaser in connection with the Certificates shall be terminated, (ii) such later date as the Agent may specify and (iii) the first Business Day that is at least 90 days after delivery by the Agent to the Transferor of written notice that the commitment of any Liquidity Provider to provide liquidity support to the Purchaser in connection with the Certificates shall be terminated or (b) unless the applicable Liquidity Provider is earlier replaced by the Agent with a commercial bank satisfactory to the Agent having a commercial paper or short-term deposit rating of A-1+ from Standard & Poor's and P1 from Moody's the latest of (i) the first Business Day that is 30 days after the date on which a Liquidity Provider is downgraded to a level less than that required by the rating agencies rating the commercial paper notes of the Purchaser (a "Downgrade Event"), (ii) such later date as the Agent may specify and (iii) the first Business Day that is at least 30 days after delivery by the Agent to the Transferor of written notice of the applicable Downgrade Event. 15 16 "Losses" shall have the meaning set forth in Section 10.01. "Monthly Interest" shall mean with respect to any Distribution Date, an amount equal to the sum of (a) the product of (i) the Certificate Rate in effect with respect to the Interest Period ending immediately prior to such Distribution Date, (ii) the average daily principal balance of the Certificates during such Interest Period, and (iii) a fraction the numerator of which is the actual number of days in such Interest Period and the denominator of which is 360, plus (b) all Breakage Costs incurred by Owners during the immediately preceding Interest Period. "Other Taxes" shall mean any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment or deposit required to be made hereunder, under the Pooling and Servicing Agreement or the Supplement or from the execution, delivery or registration of, or otherwise with respect to, any of the foregoing. "Owner" shall mean the Purchaser and all other owners by assignment, participation or otherwise of a Certificate or any interest therein. "Permitted Assignee" shall mean each Person listed in a letter from the Transferor to the Agent dated as of the date hereof, as such list may be modified from time to time by the Transferor; provided that such modifications do not result in fewer than 15 Persons being specified in such letter. "Pooling and Servicing Agreement" shall mean the Amended and Restated Pooling and Servicing Agreement dated as of May 21, 1999, among the Transferor, the Servicer and the Trustee, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Program Fee Rate" shall have the meaning specified in the Fee Letter. "Purchase Commitment" shall mean the commitment of the 16 17 Purchaser to acquire interests in the Certificates in a maximum aggregate principal amount outstanding from time to time not to exceed $300,000,000, as such amount may be reduced from time to time pursuant to Section 2.05. "Purchase Commitment Termination Date" shall mean the earliest of (a) the Business Day preceding the day on which the Scheduled Amortization Period commences, (b) the Business Day preceding the day on which the Early Amortization Period commences and (c) the Scheduled Liquidity Termination Date. "Purchase Price" shall have the meaning set forth in Section 2.02. "Required Owners" shall mean, at any time, those Owners owning interests in Certificates aggregating 66-2/3% of the aggregate unpaid principal balance of the Certificates at such time. "Scheduled Liquidity Termination Date" shall mean May 19, 2000, as such date may be extended pursuant to Section 2.05(b). "Certificate Documents" shall mean the Pooling and Servicing Agreement, the Series 1999-2 Supplement, each Receivables Purchase Agreement and the Certificates. "Supplement" shall mean the Series 1999-2 Supplement dated as of May 21, 1999, among the Transferor, the Servicer and the Trustee. "Taxes" shall have the meaning set forth in Section 2.09(a). "Transferor" shall have the meaning specified in the preamble hereto. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction. "Year 2000 Plan" shall have the meaning set forth in 17 18 Section 6.09. "Year 2000 Problem" shall have the meaning set forth in Section 6.09. SECTION 1.02. Accounting Terms; Other Terms. Any accounting terms used in this Agreement shall, unless otherwise specifically provided, have the meanings customarily given to them in accordance with generally accepted United States accounting principles or United States regulatory accounting principles, as applicable, as in effect from time to time, and all financial computations hereunder shall, unless otherwise specifically provided, be computed in accordance with generally accepted United States accounting principles or United States regulatory accounting principles, as applicable, as in effect from time to time, consistently applied. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.03. Other Rules of Construction. References in this Agreement to sections, schedules and exhibits are to sections of and schedules and exhibits to this Agreement unless otherwise indicated. The words "hereof", "herein", "hereunder" and comparable terms refer to the entirety of this Agreement and not to any particular article, section or other subdivision hereof or attachment hereto. Words in the singular include the plural and in the plural include the singular. Unless the context otherwise requires, the word "or" is not exclusive. The word "including" shall be deemed to mean "including, without limitation". The section and article headings and table of contents contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Except as otherwise specified herein, all references herein (a) to any Person shall be deemed to include such Person's successors and assigns and (b) to any Governmental Rule or contract specifically defined or referred to herein shall be deemed references to such Governmental Rule or contract as the same may be supplemented, amended, waived, consolidated, replaced or modified from time to time, but only to 18 19 the extent permitted by, and effected in accordance with, the terms thereof. SECTION 1.04. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." ARTICLE II PURCHASE AND SALE; PURCHASE COMMITMENT SECTION 2.01. Purchase and Sale of the Certificates. On the terms and subject to the conditions set forth in this Agreement, and in reliance on the covenants, representations, warranties and agreements herein set forth, the Transferor agrees to sell, transfer and deliver to the Agent, at the Closing, for the benefit of the Purchaser and any other Owners from time to time, and the Purchaser agrees to purchase from the Transferor, at the Closing, the entire beneficial interest in the Certificates. SECTION 2.02. Purchase Price. The Certificates are to be purchased at an initial purchase price (the "Purchase Price") of $95,129,084.82, representing 100% of the Initial Invested Amount. Upon satisfaction of the conditions to closing set forth in Articles IV and V, the Purchase Price is to be remitted to the Transferor in immediately available funds by wire transfer pursuant to written instructions to be provided to the Agent at least five Business Days prior to the Closing Date. SECTION 2.03. Increases and Decreases in the Invested Amount. (a) Subject to the terms and conditions of Section 4.10 of the Supplement, the Purchaser hereby agrees from the Closing Date to (but not including) the Purchase Commitment Termination Date to fund any Invested Amount Increase requested by the Transferor from the Agent and the Purchaser in accordance with the procedures described in Section 4.10 of the Supplement; 19 20 provided, however, that at no time shall the aggregate outstanding principal amount of the Certificates allocable to the Purchaser exceed the Purchase Commitment. On the date of the applicable Invested Amount Increase, the Purchaser shall remit to the Agent, in immediately available funds, the amount of such Invested Amount Increase, whereupon the Agent will remit such amount, in immediately available funds, to the Transferor in accordance with such payment instructions as the Transferor shall have delivered in writing to the Agent at least one Business Day prior to the date of such Invested Amount Increase. (b) The Invested Amount may be decreased from time to time in accordance with the procedures described in of the Supplement and, so long as the Purchase Commitment Termination Date has not occurred, subsequently increased in accordance with the requirements of this Agreement and Section 4.10 of the Supplement. (c) Notwithstanding anything to the contrary contained herein, if any Invested Amount Increase is not made on the date specified by the Transferor in its written request therefor delivered pursuant to Section 4.10 of the Supplement, the Transferor shall indemnify each Affected Party against any reasonable loss, cost or expense incurred by such Affected Party as a result of such occurrence, including, without limitation, any reasonable loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Affected Party to fund such anticipated Invested Amount Increase. SECTION 2.04. Commitment Fee. From and after the Closing Date until the Purchase Commitment Termination Date, the Transferor shall pay to the Purchaser a commitment fee equal to the product of (a) the average daily amount of the excess of (i) the Purchase Commitment over (ii) the aggregate outstanding principal amount of all Certificates held by or for the benefit of the Purchaser and (b) the Commitment Fee Rate, payable in arrears on each Distribution Date. SECTION 2.05. Termination or Reduction of the Purchase 20 21 Commitment; Scheduled Liquidity Termination Date. (a) Upon at least five Business Days' notice to the Purchaser, the Transferor may terminate in whole or reduce in part the unused portion of the Purchase Commitment; provided, however, that any such reduction in part shall be in a minimum amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) if, after giving effect to such reduction, the Purchase Commitment would be less that $100,000,000, such reduction shall be either in such smaller amount as will not cause the Purchase Commitment to be less than $100,000,000 or in a amount sufficient to reduce the Purchase Commitment hereunder to zero. (b) If the Scheduled Liquidity Termination Date in effect at any time will not be extended, the Agent agrees that it will so notify the Transferor and the Servicer in writing at least 30 days prior to such Scheduled Liquidity Termination Date. To the extent that the Agent has not delivered a notice of nonextension as contemplated in the preceding sentence, the Agent will, on or before the Scheduled Liquidity Termination Date then in effect, notify the Transferor and the Servicer of the new Scheduled Liquidity Termination Date, whereupon such new date shall be the effective Scheduled Liquidity Termination Date. SECTION 2.06. Calculation and Payment of Monthly Interest and Fees; Selection of Commercial Paper Note Maturities. (a) The amount of interest payable on each Distribution Date in respect of Certificates shall equal the Monthly Interest for such Distribution Date. The Agent shall notify the Servicer, the Trustee and the Purchaser, on the Business Day preceding each Determination Date, of the Monthly Interest for the related Distribution Date and the Certificate Rate for the related Interest Period. (b) Out of the Monthly Interest received by the Agent for each Interest Period, the Agent shall remit to each Owner an amount of interest equal to the product of (i) such Owner's cost of funds and (ii) such Owner's allocable share of the Invested Amount during such Interest Period, plus the amount of any Breakage Costs applicable to such Owner in respect of such Distribution Date. 21 22 (c) All computations of interest, fees and other amounts under this Agreement shall be made on the basis of a year of 360 days and the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. (d) The Purchaser (or the Agent on its behalf) shall select the maturities of Commercial Paper Notes allocated to fund or maintain the Purchaser's interest in the Certificates in consultation with the Transferor; provided, however, that (i) such no such Commercial Paper Note shall in any event mature more than 90 days after the date it is issued and (ii) notwithstanding the Agent's agreement to consult with the Transferor in selecting maturities for such Commercial Paper Notes, the Agent, on behalf of the Purchaser, shall retain full and absolute discretion to select such maturities. SECTION 2.07. Increased Costs. (a) If due to the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the Interpretation of any law or regulation or the imposition of any guideline or request from any central bank or other Governmental Authority after the date hereof, there shall be an increase in the cost to an Affected Party of making, funding or maintaining any investment in the Certificates or any interest therein or of agreeing to purchase or invest in the Certificates or any interest therein, as the case may be (other than by reason of any Interpretation of or change in laws or regulations relating to Taxes or Excluded Taxes, such Affected Party shall promptly submit to the Transferor, the Servicer and the Agent a certificate setting forth in reasonable detail, the calculation of such increased costs incurred by such Affected Party. In determining such amount, such Affected Party may use any reasonable averaging and attribution methods, consistent with the averaging and attribution methods generally used by such Affected Party in determining amounts of this type. The amount of increased costs set forth in such certificate (which 22 23 certificate shall, in the absence of manifest error, be prima facie evidence as to such amount) shall be included in the Additional Amounts for (a) the first full Interest Period immediately succeeding the date on which the certificate specifying the amount owing was delivered and (b) to the extent remaining outstanding, each Interest Period thereafter until paid in full. The Agent shall, out of amounts received by it in respect of the Additional Amounts on any Distribution Date, pay to each Affected Party, any increased costs due pursuant to this Section 2.07, provided, however, that if the amount distributable in respect of the Additional Amounts on any Distribution Date is less than the aggregate amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09 for the corresponding Interest Period, the resulting shortfall shall be allocated among such Affected Parties on a pro rata basis (determined by the amount owed to each). Failure on the part of any Affected Party to demand compensation for any amount pursuant to this Section 2.07 for any period shall not constitute a waiver of such Affected Party's right to demand compensation for such period; provided, however, that no Affected Party shall be entitled to compensation for any such amount relating to any period ending more than six months prior to the date that such Affected Party notifies the Transferor, the Servicer and the Agent in writing thereof. (b) Each Owner agrees that it shall use its best efforts to take (or cause any Affected Party claiming through such Owner to take) such steps as would eliminate or reduce the amount of any increased costs described in this Section 2.07 incurred by such Owner or Affected Party; provided that no such steps shall be required to be taken if, in the reasonable judgment of such Owner or Affected Party, such steps would be disadvantageous to such Owner or Affected Party or inconsistent with its internal policy and legal and regulatory restrictions. To the extent that, notwithstanding such efforts, any Owner that is a Liquidity Provider (or any Affected Party claiming through an Owner that is a Liquidity Provider) is unable to eliminate such increased costs and makes a demand hereunder, the Purchaser may replace such Liquidity Provider with another commercial bank satisfactory to the Purchaser, the Agent and the Transferor; provided, however, that the Purchaser shall be under no 23 24 obligation to so replace a Liquidity Provider requesting any amount under this Section 2.07, and shall in no event replace such Liquidity Provider if it is Barclays. SECTION 2.08. Increased Capital. (a) If the introduction of or any change in or in the Interpretation of any law or regulation or the imposition of any guideline or request from any central bank or other Governmental Authority, in each case, after the date hereof, affects or would affect the amount of capital required or expected to be maintained by any Affected Party, and such Affected Party determines that the amount of such capital is increased as a result of (i) the existence of the Purchaser's agreement to make or maintain an investment in the Certificates or any interest therein and other similar agreements or facilities, or (ii) the existence of any agreement by Affected Parties to make or maintain an investment in the Certificates or any interest therein or to fund any such investment and any other commitments of the same type, such Affected Party shall promptly submit to the Transferor, the Servicer and the Agent a certificate setting forth the additional amounts required to compensate such Affected Party in light of such circumstances. In determining such amount, such Affected Party may use any reasonable averaging and attribution methods, consistent with the averaging and attribution methods generally used by such Affected Party in determining amounts of this type. The amount set forth in such certificate (which certificate shall, in the absence of manifest error, be prima facie evidence as to such amount) shall be included in the Additional Amounts for (a) the first full Interest Period immediately succeeding the date on which the certificate specifying the amount owing was delivered and (b) to the extent remaining outstanding, each Interest Period thereafter until paid in full. The Agent shall, out of amounts received by it in respect of the Additional Amounts on any Distribution Date, pay to each Affected Party any amount due pursuant to this Section 2.08, provided, however, that if the amount distributable in respect of the Additional Amounts on any Distribution Date is less than the aggregate amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09 for the corresponding Interest Period, the resulting shortfall shall be allocated among such Affected Parties on a pro rata basis (determined by the 24 25 amount owed to each). Failure on the part of any Affected Party to demand compensation for any amount pursuant to this Section 2.08 for any period shall not constitute a waiver of such Affected Party's right to demand compensation for such period; provided, however, that no Affected Party shall be entitled to compensation for any such amount relating to any period ending more than six months prior to the date that such Affected Party notifies the Transferor, the Servicer and the Agent in writing thereof. (b) Each Owner agrees that it shall use its best efforts to take (or cause any Affected Party claiming through such Owner to take) such steps as would eliminate or reduce the amount of any increased costs described in this Section 2.08 incurred by such Owner or Affected Party; provided that no such steps shall be required to be taken if, in the reasonable judgment of such Owner or Affected Party, such steps would be disadvantageous to such Owner or Affected Party or inconsistent with its internal policy and legal and regulatory restrictions. To the extent that, notwithstanding such efforts, any Owner that is a Liquidity Provider (or any Affected Party claiming through an Owner that is a Liquidity Provider) is unable to eliminate such amount in respect of which compensation is payable pursuant to this Section 2.08 and makes a demand hereunder, the Purchaser may replace such Liquidity Provider with another commercial bank satisfactory to the Purchaser, the Agent and the Transferor; provided, however, that the Purchaser shall be under no obligation to so replace a Liquidity Provider requesting any amount under this Section 2.08, and shall in no event replace such Liquidity Provider if it is Barclays. SECTION 2.09. Taxes. (a) Subject to subsection 2.09(d), any and all payments and deposits required to be made hereunder or under the Pooling and Servicing Agreement or the Supplement by the Transferor or the Trustee to or for the benefit the Agent or any Owner shall be made, to the extent allowed by law, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed by any Governmental Authority, excluding, in the case of each Owner 25 26 and the Agent, (x) taxes, levies, imposts, deductions, charges or withholdings imposed on, or measured by reference to, the net income of such Owner or the Agent, as applicable, franchise taxes imposed on such Owner or the Agent, as applicable (including, without limitation, branch profits taxes, minimum taxes and taxes computed under alternative methods, at least one of which is based on net income), and any other taxes (other than withholding taxes not imposed by section 1446 of the Code and Other Taxes), levies, imposts, deductions, charges or withholdings based or imposed on income or the receipts or gross receipts of such Owner or the Agent, as applicable, in each case, by any of (i) the United States or any State thereof, (ii) the state or foreign jurisdiction under the laws of which such Owner or the Agent, as applicable, is organized, with which it has a present or former connection (other than solely by reason of this Agreement), or in which it is otherwise doing business or (iii) any political subdivision thereof; (y) any taxes, levies, imposts, duties, charges or fees to the extent of any credit or other benefit actually realized by such Agent or Owner, as applicable, as a result thereof; and (z) any taxes, levies, imposts, duties, charges or fees imposed as a result of a change by the Agent or Owner, as applicable, of the office in which all or any part of its interest in the Certificates is acquired, accounted for or booked (all such excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being referred to herein as "Excluded Taxes" and all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being referred to herein as "Taxes"). If the Transferor or the Trustee shall be required by law to deduct any Taxes from or in respect of any sum required to be paid or deposited hereunder to or for the benefit any Owner or the Agent, then, to the extent provided in subsection 2.09(d), (i) such sum shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.09), such Owner or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Transferor or the Trustee (as appropriate) shall make such deductions and (iii) the Transferor or the Trustee (as appropriate) shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. 26 27 (b) To the extent provided in subsection 2.09(d), each Owner and the Agent shall be reimbursed for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts otherwise payable under this Section 2.09) paid by such Owner or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Each Owner and the Agent agrees to promptly notify the Transferor and the Servicer of any payment of such Taxes or Other Taxes made by it and, if practicable, any request, demand or notice received in respect thereof prior to such payment. In addition, in the event any Owner is required, in accordance with and pursuant to the terms of any agreement or other document providing liquidity support, credit enhancement or other similar support to such Owner in connection with the Certificates or the funding or maintenance of an interest therein, to compensate a bank or other financial institution in respect of taxes under circumstances similar to those described in this Section 2.09, then, to the extent provided in subsection 2.09(d), such Owner shall be reimbursed for any such compensation so paid by it. A certificate as to the amount of any indemnification pursuant to this subsection 2.09(b) submitted to the Transferor by such Owner or the Agent, as the case may be, setting forth in reasonable detail the basis for and the calculation thereof, shall (absent manifest error) be prima facie evidence as to such amount. (c) Within 30 days after the date of any payment of Taxes or Other Taxes, the Transferor will furnish to the Agent the original or a certified receipt evidencing payment thereof. (d) Any amounts payable to an Owner or the Agent pursuant to this Section 2.09 shall be included in the Additional Amounts for (i) in the case of amounts payable pursuant to subsection 2.09(a), the Interest Period in respect of which the payment subject to withholding is made, (ii) in the case of amounts payable pursuant to subsection 2.09(b), the first full Interest Period immediately succeeding the date on which the certificate specifying the amount owing was delivered and (iii) in either case, to the extent remaining outstanding, each 27 28 Interest Period thereafter until paid in full. The Agent shall, out of amounts received by it in respect of the Additional Amounts on any Distribution Date, pay to each Owner and itself, as applicable, any reimbursement due pursuant to this Section 2.09, provided, however, that if the amount distributable in respect of the Additional Amounts on any Distribution Date is less than the aggregate amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09 for the corresponding Interest Period, the resulting shortfall shall be allocated among such Affected Parties on a pro rata basis (determined by the amount owed to each). (e) The Agent and each Owner (i) that is organized under the laws of a jurisdiction outside the United States hereby agrees to complete, execute and deliver to the Trustee from time to time prior to the initial Distribution Date on which such Person will be entitled to receive distributions pursuant to the Supplement and this Agreement, Internal Revenue Service form 4224 (or any successor form), (ii) at the request of the Transferor, hereby agrees to complete, execute and deliver to the Trustee from time to time prior to the initial Distribution Date on which such Person will be entitled to receive distributions pursuant to the Supplement and this Agreement, Internal Revenue Service form W-9 (or any successor form), and (iii) hereby agrees to complete, execute and deliver to the Trustee from time to time prior to the initial Distribution Date on which such Person will be entitled to receive distributions pursuant to the Supplement and this Agreement, such other forms or certificates as may be required under the laws of any applicable jurisdiction in order to permit the Transferor or the Trustee to make payments to, and deposit funds to or for the account of, such Person hereunder and under the Pooling and Servicing Agreement and the Supplement without any deduction or withholding for or on account of any United States tax. Each of the Agent and each Owner agrees to provide like additional subsequent duly executed forms on or before the date that any such form expires or becomes obsolete, or upon the occurrence of any event requiring an amendment, resubmission or change in the most recent form previously delivered by it and to provide such extensions or renewals as may be reasonably requested by the Transferor or the Trustee. Each of the Agent and the Owner certifies, represents and warrants 28 29 that as of the date of this Agreement, or in the case of an Owner which is an assignee as of the date of such assignment, that (i) it is entitled (x) to receive payments under this Agreement without deduction or withholding of any United States federal income taxes (other than taxes subject to withholding pursuant to Code Section 1446) and (y) to an exemption from United States backup withholding tax and (ii) it will pay any taxes attributable to its ownership of an interest in the Certificates. Each of the Agent and each Owner further agrees that compliance with this subsection 2.09(e) (including by reason of subsection 12.04(c) in the case of any sale or assignment of any interest in Certificates) is a condition to the payment of any amount otherwise due pursuant to subsections 2.09(a) and 2.09(b) hereof. Notwithstanding anything to the contrary herein, each of the Paying Agent, Servicer and Trustee shall be entitled to withhold any amount that it reasonably determines in its sole discretion is required to be withheld pursuant to section 1446 of the Code and such amount shall be deemed to have been paid to the Agent or Owner, as applicable, for all purposes of the Agreement. (f) Any Owner entitled to the payment of any additional amount pursuant to this Section 2.09 shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to take such steps as would eliminate or reduce the amount of such payment; provided that no such steps shall be required to be taken if, in the reasonable judgment of such Owner, such steps would be materially disadvantageous to such Owner. To the extent that, notwithstanding such efforts, any Owner that is a Liquidity Provider is unable to eliminate an amount payable under this Section 2.09 and makes a demand hereunder, the Purchaser shall use its reasonable efforts to replace such Liquidity Provider with another commercial bank satisfactory to the Purchaser, the Agent and the Transferor; provided, however, that the Purchaser shall be under no obligation to so replace such Liquidity Provider if it is Barclays. (g) Without prejudice to the survival of any other agreement of the Transferor hereunder, the agreements and obligations of the Transferor contained in this Section 2.09 shall survive the termination of this Agreement. 29 30 ARTICLE III CLOSING SECTION 3.01. Closing. The Closing (the "Closing") of the purchase and sale of the Certificates shall take place at the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, at 10:00 a.m. (Eastern Daylight Time), on May 21, 1999, or, if the conditions to closing set forth in Articles IV and V of this Agreement shall not have been satisfied or waived by such date, as soon as practicable after such conditions shall have been satisfied or waived, or at such other time, date and place as the parties shall agree upon (the date of the Closing being referred to herein as the "Closing Date"). SECTION 3.02. Transactions to be Effected at the Closing. At the Closing, (a) the Purchaser will deliver to the Transferor (by wire transfer of immediately available funds to a bank account designated by the Transferor at least two Business Days prior to the Closing Date) an amount equal to the Purchase Price (net of certain amounts to be retained by the Agent pursuant to instructions from the Transferor) and (b) the Transferor shall deliver the Certificates to the Agent. ARTICLE IV PURCHASER CONDITIONS PRECEDENT SECTION 4.01. Conditions Precedent to the Purchase of the Certificates. The obligation of the Purchaser to purchase and pay for the Certificates on the Closing Date is subject to the satisfaction at the time of the Closing of the following conditions: (a) Performance by the Transferor. All the terms, covenants, agreements and conditions of this Agreement, the Pooling and Servicing Agreement and the Supplement to be complied with and performed by the Transferor by the Closing shall have 30 31 been complied with and performed in all material respects. (b) Representations and Warranties. Each of the representations and warranties of the Transferor made in this Agreement, the Pooling and Servicing Agreement and the Supplement shall be true and correct in all material respects as of the time of the Closing as though made as of such time (except to the extent they expressly relate to an earlier time). (c) Officers' Certificate. The Agent shall have received from the Transferor, in form and substance reasonably satisfactory to the Purchaser and the Agent, an Officer's Certificate, dated the Closing Date, certifying as to the satisfaction of the conditions set forth in subsections 4.01(a) and 4.01(b). (d) Certain Opinions of Counsel. The Agent shall have received from Orrick, Herrington & Sutcliffe LLP, acting as counsel to the Transferor, the Servicer and/or certain other parties, as applicable, favorable opinions, dated the Closing Date and reasonably satisfactory in form and substance to the Purchaser, the Agent and their counsel. (e) Opinion of Counsel to the Trustee. The Agent shall have received from McGuire, Woods, Battle & Boothe LLP, counsel to the Trustee, a favorable opinion, dated the Closing Date and reasonably satisfactory in form and substance to the Purchaser, the Agent and their counsel. (f) Financing Statements. The Agent shall have received evidence reasonably satisfactory to the Purchaser and the Agent that, on or before the Closing Date, UCC-1 financing statements have been filed in the offices of the Secretary of State or comparable offices of the applicable states and in the appropriate office or offices in such other locations as may be specified in the relevant opinions of counsel delivered pursuant to subsection 4.01(d) and in such other jurisdictions as its counsel deems appropriate, reflecting the assignments contemplated by such opinions of counsel and the respective interests of the applicable parties. 31 32 (g) Ratings. To the extent required, each of Moody's and Standard & Poor's shall have confirmed in writing to the Purchaser that the purchase by the Purchaser of its interest in the Certificates would not result in the reduction or withdrawal of the then current rating of the Commercial Paper Notes. (h) Reserve Account. The Reserve Account shall have been established in accordance with the requirements of Section 4.11 of the Supplement, and there shall have been deposited therein an amount at least equal to the Required Reserve Account Amount, determined by reference to the Initial Invested Amount. (i) Pooling and Servicing Agreement et al. The Agent and the Purchaser shall have received a fully executed copy of each of the Pooling and Servicing Agreement, the Supplement and the other instruments, documents and agreements required to be delivered thereunder. Each of the Pooling and Servicing Agreement and the Supplement shall have been duly authorized, executed and delivered by the Transferor, the Servicer, and the Trustee, and shall be in full force and effect on the Closing Date. (j) Interest Rate Cap. The Interest Rate Cap shall be in full force and effect in accordance with the requirements of Section 4.13 of the Supplement. (k) No Actions or Proceedings. No action, suit, proceeding or investigation by or before any Governmental Authority shall have been instituted to restrain or prohibit the consummation by the Transferor, the Agent or the Purchaser of, or to invalidate, the transactions contemplated by this Agreement, the Supplement or any of the Liquidity Agreements or Enhancement Agreements in any material respect. (l) Approvals and Consents. All Governmental Actions of Governmental Authorities required by the Agent, the Purchaser or the Transferor with respect to the transactions contemplated by this Agreement, the Supplement and the Liquidity Agreements and Enhancement Agreements shall have been obtained or made. 32 33 (m) Commercial Paper Market. The commercial paper market shall be available to the Purchaser at the time of the Closing. (n) Payment of Fees. All fees required to be paid to the Agent or the Purchaser in connection with the Closing pursuant to the Fee Letter shall have been paid. (o) Other Documents. The Transferor shall have furnished to the Purchaser or the Agent, as the case may be, such other information, certificates and documents as the Purchaser, the Agent or their counsel may reasonably request. SECTION 4.02. Conditions Precedent to Invested Amount Increases. The obligation of the Purchaser to make any Invested Amount Increase is subject to the satisfaction, as of the applicable Increase Date, of each of the applicable Increase Conditions and the other applicable conditions specified herein. ARTICLE V TRANSFEROR CONDITIONS PRECEDENT SECTION 5.01. Conditions Precedent to the Sale of the Certificates. The obligation of the Transferor to sell the Certificates to the Agent on the Closing Date for the benefit of the Purchaser and the subsequent Owners from time to time is subject to the satisfaction at the time of the Closing of the following conditions: (a) Performance by the Purchaser and the Agent. All the terms, covenants, agreements and conditions of this Agreement to be complied with and performed by the Purchaser or the Agent, as the case may be, by the Closing shall have been complied with and performed in all material respects. (b) Representations and Warranties. Each of the representations and warranties of each of the Purchaser and the Agent made in this Agreement shall be true and correct in all 33 34 material respects as of the time of the Closing as though made as of such time (except to the extent they expressly relate to an earlier time). (c) Officer's Certificate. The Transferor shall have received from the Purchaser, in form and substance reasonably satisfactory to the Transferor, a certificate signed by an officer of the Purchaser, dated the Closing Date, certifying as to the satisfaction of the conditions set forth in subsections 5.01(a) and 5.01(b). (d) Opinion of Counsel to the Purchaser. The Transferor shall have received from Sidley & Austin, counsel to the Purchaser, a favorable opinion, dated the Closing Date and reasonably satisfactory in form and substance to the Transferor and its counsel. (e) Opinion of Counsel to the Trustee. The Transferor shall have received from McGuire, Woods, Battle & Boothe LLP, counsel to the Trustee, a favorable opinion, dated the Closing Date and reasonably satisfactory in form and substance to the Transferor and its counsel. (h) No Actions or Proceedings. No action, suit, proceeding or investigation by or before any Governmental Authority shall have been instituted to restrain or prohibit the consummation by the Transferor, the Agent or the Purchaser of, or to invalidate, the transactions contemplated by this Agreement in any material respect. (i) Approvals and Consents. All Governmental Actions of Governmental Authorities required by the Purchaser, the Agent or the Transferor with respect to the transactions contemplated by this Agreement shall have been obtained or made. (j) Other Documents. The Purchaser or the Agent, as applicable, shall have furnished to the Transferor such other information, certificates and documents as the Transferor or its counsel may reasonably request. 34 35 ARTICLE VI REPRESENTATIONS AND WARRANTIES Each of the Transferor and the Servicer hereby represents and warrants to the Owners and the Agent with respect to itself (giving effect, in the case of any Successor Servicer, any successor to the Transferor or any Additional Transferor, to such changes to Section 6.01 as may be necessary to reflect accurately the incorporation or other formation of such Successor Servicer, successor to the Transferor or Additional Transferor) as of the date of this Agreement, as of the Closing Date, and as of (and as a condition to any Invested Amount Increase occurring on) each Increase Date (but excluding, in the case of any Increase Date, Section 6.05), in each case with reference to the facts and circumstances then existing, as follows: SECTION 6.01. Corporate Existence. The Transferor is a corporation validly existing and in good standing under the laws of the State of Delaware, with full power and authority under such laws 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 this Agreement and each Certificate Document to which it is a party. The Servicer is a corporation validly existing and in good standing under the laws of the State of Delaware, with full power and authority under such laws 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 this Agreement and each Certificate Document to which it is a party. SECTION 6.02. Corporate Authority. The Transferor or the Servicer, as applicable, has the corporate power, authority and right to make, execute, deliver and perform this Agreement and each Certificate Document to which it is a party and all the transactions contemplated hereby and thereby and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and each Certificate Document 35 36 to which it is a party; and, when executed and delivered, each of this Agreement and the Certificate Documents to which it is a party will constitute its legal, valid and binding obligation, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, receivership, conservatorship and other laws of general applicability relating to or affecting creditors' rights generally from time to time in effect. The enforceability of its obligations under such agreements is also subject to general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law, and no representation or warranty is made with respect to the enforceability of its obligations under any indemnification provisions in such agreements to the extent that indemnification is sought in connection with securities laws violations and is contrary to public policy. SECTION 6.03. No Consents Required. No consent, license, approval or authorization of, or registration with, any Governmental Authority is required to be obtained by the Transferor or the Servicer, as applicable, in connection with the execution, delivery or performance by the Transferor or the Servicer, as applicable, of each of this Agreement and the Certificate Documents that has not been duly obtained and which is not and will not be in full force and effect on the Closing Date or the relevant Increase Date, as applicable. SECTION 6.04. No Violation. The execution, delivery and performance of each of this Agreement and the Certificate Documents do not violate any provision of any existing law or regulation applicable to the Transferor or the Servicer, as applicable, any order or decree of any court or other judicial authority to which it is subject, its charter or By-laws or any mortgage, indenture, contract or other agreement to which it is a party or by which it or any significant portion of its properties is bound (other than violations of such laws, regulations, orders, decrees, mortgages, indentures, contracts and other agreements which, individually or in the aggregate, would not have a material adverse effect on the Transferor's or the Servicer's, as applicable, ability to perform its obligations under, or the validity or enforceability of, this Agreement or 36 37 the Certificate Documents). SECTION 6.05. Financial Statements. Prior to the Closing Date, the Transferor has delivered or caused to be delivered to the Agent complete and correct copies of, (a) the audited consolidated balance sheet of NextCard and its subsidiaries as of December 31, 1998, and the related audited consolidated statements of income and cash flows of NextCard and its subsidiaries for the fiscal year then ended, accompanied by the opinion of NextCard's independent certified public accountants and (b) the unaudited consolidated balance sheet of NextCard and its subsidiaries as of March 31, 1999, and the related unaudited consolidated statements of income and cash flows of NextCard and its subsidiaries for the fiscal quarter then ended. Such financial statements are complete and correct in all material respects and fairly present the financial condition of NextCard and its subsidiaries as of their respective dates and the results of operations of NextCard and its subsidiaries for the applicable periods then ended, subject to year-end adjustments in the case of unaudited information, all in accordance with generally accepted accounting principles or regulatory accounting principles, as applicable, consistently applied. SECTION 6.06. No Proceeding. There is no action, litigation or proceeding before any court, tribunal or governmental body presently pending or, to the knowledge of the Transferor or the Servicer, as applicable, threatened against the Transferor or the Servicer, as applicable, with respect to this Agreement, the Certificate Documents, the transactions contemplated hereby or thereby or the issuance of the Certificates, and there is no such litigation or proceeding against it or any significant portion of its properties which would have a material adverse effect on the transactions contemplated by, or its ability to perform its obligations under, this Agreement or any Certificate Document to which it is a party. SECTION 6.07. Trust Indenture Act; Investment Company Act. Neither the Pooling and Servicing Agreement nor the Supplement is required to be qualified under the Trust Indenture 37 38 Act of 1939, and the Trust is not required to be registered under the Investment Company Act of 1940, as amended. SECTION 6.08. No Pay Out Event or Other Default. No Pay Out Event or Servicer Default has occurred and is continuing, both before and immediately after giving effect to the purchase or issuance of the Certificates or the relevant Invested Amount Increase, as applicable, and no event, act or omission has occurred and is continuing which, with the lapse of time, the giving of notice, or both, would constitute a Pay Out Event or Servicer Default. SECTION 6.09. The Certificates. The Certificates have been duly and validly authorized, and, when executed and authenticated in accordance with the terms of the Pooling and Servicing Agreement and the Supplement and delivered to the Agent in accordance with this Agreement, will be duly and validly issued and outstanding, and will be entitled to the benefits of, as applicable, this Agreement and the applicable Certificate Documents. SECTION 6.10. Absence of Material Adverse Change. Since December 31, 1998, there has not been any material adverse change in the condition (financial or otherwise) of NextCard that has not been disclosed in writing by the Transferor or NextCard to the Agent. SECTION 6.11. Taxes, Etc. Any taxes, fees and other charges of Governmental Authorities imposed upon the Transferor or the Servicer, as applicable, in connection with the execution, delivery and performance by the Transferor or the Servicer, as applicable, of this Agreement, the Pooling and Servicing Agreement, the Supplement and, the Certificates or otherwise in connection with the Trust have been paid or will be paid by the Transferor or the Servicer, as applicable, at or prior to the Closing Date or the relevant Increase Date, as applicable, to the extent then due. SECTION 6.12. Disclosure. All written factual information heretofore furnished by the Transferor, the Servicer 38 39 or any of their respective representatives to the Agent or any Owner or any of their representatives for purposes of or in connection with this Agreement, including, without limitation, information relating to the Accounts and Receivables and the Transferor?s credit card businesses, was true and correct in all material respects on the (a) date such information was furnished by the Transferor or the Servicer, as applicable, or (b) if such information specifically relates to an earlier date, on such earlier date. SECTION 6.13. Year 2000 Plan. Each of the Transferor and the Servicer have reviewed the areas within its business and operations that could be adversely affected by, and have developed a plan (the "Year 2000 Plan") to address on a timely basis, the risk that computer applications used to process any data related to this Agreement may produce materially adverse consequences in performing date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (such risk being referred to herein as the "Year 2000 Problem"). Each of the Transferor and the Servicer is taking or causing to be taken reasonable measures to address the Year 2000 Problem on a timely basis. To the best of the Transferor's and the Servicer's knowledge, the Year 2000 Problem will not materially and adversely affect the interests of the Owners under this Agreement, the Supplement and the Pooling and Servicing Agreement. SECTION 6.14. FICO Scores. As of the Closing Date, no more than [*] of the aggregate Principal Receivables have related Obligors with FICO Scores as of the date of the origination of their respective Accounts of less than [*]. SECTION 6.15. Location of Offices. The Transferor's principal place of business and chief executive office is located in the State of California, or such other jurisdiction with respect to which the requirements specified in Section 8.05 hereof have been satisfied. SECTION 6.16. Pooling and Servicing Representations and Warranties. Its representations and warranties in "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 39 40 Sections 2.03 and 2.04 (in the case of a Transferor) or Section 3.03 (in the case of the Servicer) of the Pooling and Servicing Agreement are true and correct in all material respects as of the dates they were made (unless they specifically refer to an earlier date, in which case they were true and correct on such earlier date). ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE AGENT Each of the Purchaser and the Agent hereby represents and warrants to the Transferor as to itself as of the date of this Agreement and as of the Closing Date as follows: SECTION 7.01. Organization. The Purchaser has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. The Agent is duly incorporated under the laws of England. SECTION 7.02. Authority. The Purchaser or the Agent, as applicable, has the corporate power, authority and right to make, execute, deliver and perform this Agreement and all the transactions contemplated hereby and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement; and, when executed and delivered, this Agreement will constitute its legal, valid and binding obligation, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, receivership, conservatorship and other laws of general applicability relating to or affecting creditors' rights generally from time to time in effect. The enforceability of its obligations under this Agreement is also subject to general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law, and no representation or warranty is made with respect to the enforceability of its obligations under any indemnification provisions in such agreements to the extent that indemnification 40 41 is sought in connection with securities laws violations and is contrary to public policy. SECTION 7.03. Securities Act. The Certificates purchased by the Agent for the benefit of the Purchaser pursuant to this Agreement will be acquired for investment only and not with a view to any public distribution thereof, and neither the Purchaser nor the Agent will offer to sell or otherwise dispose of any Certificates so acquired by it (or any interest therein) in violation of any of the registration requirements of the Act or any applicable state or other securities laws. Each of the Purchaser and the Agent acknowledges that it has no right to require the Transferor to register under the Act or any other securities law any Certificates to be acquired by the Agent for the benefit of the Purchaser or any other Owner pursuant to this Agreement. Each of the Agent and the Purchaser will execute and deliver to the Transferor on or before the Closing Date an Investment Letter with respect to the purchase of the Certificates. SECTION 7.04. Investment Company Act. Neither the Purchaser nor the Agent is subject to registration as an "investment company" within the meaning of the Investment Company Act of 1940, as amended. ARTICLE VIII COVENANTS OF THE TRANSFEROR SECTION 8.01. Access to Information. From the Closing Date until the Collection Date, each of the Transferor and the Servicer will, at any time and from time to time during regular business hours, on at least five Business Days' (or if a Pay Out Event or Servicer Default or event that with the giving of notice or lapse of time or both would constitute a Pay Out Event or Servicer Default, has occurred, one Business Day's) notice to the Transferor or the Servicer, as the case may be, permit the Agent or any Owner, or its agents or representatives, at the Agent's or such Owner's expense (or if a Pay Out Event or Servicer Default or event that with the giving of notice or lapse of time or both 41 42 would constitute a Pay Out Event or Servicer Default, has occurred, at the expense of the Transferor in the case of a Pay Out Event or the Servicer in the case of a Servicer Default), (a) to examine all books, records and documents (including computer tapes and disks) in the possession or under the control of the Transferor or the Servicer, as the case may be, relating to the Receivables (other than names of account holders and strategic plans for the Servicer's credit card business), including the forms of Credit Card Agreements under which such Receivables arise, and (b) to visit the offices and properties of the Transferor or the Servicer, as applicable, for the purpose of examining such materials described in clause (a) above. SECTION 8.02. Reporting Requirements of the Transferor. From the Closing Date until the Collection Date, the Transferor will furnish to the Agent: (a) a copy of each certificate, report, statement, notice or other communication furnished by or on behalf of the Transferor or the Servicer to the Trustee or any Rating Agency, or any Series Enhancer (other than investment instructions or any such item furnished to the Trustee or any Rating Agency relating solely to one or more Series other than Series 1999-2), concurrently therewith, and promptly after receipt thereof, a copy of each notice, demand or other communication received by or on behalf of the Transferor or the Servicer under the Pooling and Servicing Agreement or the Supplement (other than any such item relating solely to one or more Series other than Series 1999-2); (b) such other information, documents, records or reports respecting the Accounts, the Receivables or the servicing thereof or the Trust as the Agent or any Owner may from time to time reasonably request; (c) (i) within 90 days following the end of each fiscal year of NextCard, beginning with the fiscal year ending December 31, 1999, the audited consolidated balance sheet of NextCard and its subsidiaries as of the end of such 42 43 fiscal year, and the related audited consolidated statements of income and cash flows of NextCard and its subsidiaries for such fiscal year, accompanied by the opinion of NextCard's independent certified public accountants and (b) within 45 days following the end of each fiscal quarter of NextCard, beginning with the fiscal quarter ending June 30, 1999, the unaudited consolidated balance sheet of NextCard and its subsidiaries as of the end of such fiscal quarter, and the related unaudited consolidated statements of income and cash flows of NextCard and its subsidiaries for such fiscal quarter; and (d) such publicly available information, documents, records or reports respecting NextCard, the Transferor or the condition or operations, financial or otherwise, of NextCard or the Transferor as the Agent or any Owner may from time to time reasonably request. SECTION 8.03. Optional Repurchase. The Transferor shall not exercise its right to repurchase the Certificates pursuant to Section 7.01 of the Supplement and Section 12.05 of the Pooling and Servicing Agreement unless the Owners and the Agent have been paid, or will be paid upon such repurchase, the outstanding principal balance of the Certificates, all interest thereon and all other amounts owing hereunder in full. SECTION 8.04. Termination of the Loan Agreement. Upon the Closing, the Transferor shall furnish to the Agent documentation satisfactory in form and substance to the Agent evidencing (a) the termination of Supplement No. 1, dated as of December 1, 1998, among the Transferor, the Servicer and the Trustee, supplementing the Pooling and Servicing Agreement as in effect prior to the amendment and restatement thereof as of May 21, 1999, (b) the termination of the Loan Agreement, dated as of December 29, 1998, among the Transferor, the lenders party thereto and Credit Suisse First Boston, New York Branch, as administrative agent and arranger, (c) the repayment in full of all loans and other amounts owing under such Loan 43 44 Agreement and (d) the release of any and all liens, security interests, guaranties and other interests or arrangements supporting repayment of such loans and other amounts under such Loan Agreement, other than liens, security interests and other interests or arrangements granted to and held by the Trustee under the Pooling and Servicing Agreement for the benefit of the Certificateholders. SECTION 8.05. Location of Chief Executive Office. The Transferor shall not move its principal place of business and chief executive office to a location outside the State of California unless it shall have given the Agent at least 30 days' prior written notice of such relocation and shall have executed and filed such UCC financing statements and other items and delivered such opinions as the Agent deems reasonably necessary to maintain the Trustee's perfected security interest in the Receivables. ARTICLE IX [RESERVED] ARTICLE X INDEMNIFICATION SECTION 10.01. Indemnification by the Transferor and the Servicer. (a) The Transferor shall indemnify and hold harmless each Owner, the Agent, their respective Affiliates and their respective officers, directors, employees, stockholders, agents and representatives, against any and all losses, claims, damages, liabilities or reasonable expenses (including legal and accounting fees) (collectively, "Losses"), as incurred (payable promptly upon written request), for or on account of or arising from or in connection with or otherwise with respect to any breach of any representation or warranty of the Transferor set forth in this Agreement, the Supplement or the Pooling and Servicing Agreement or in any certificate delivered pursuant hereto or thereto; provided, however, that the Transferor shall not be so required to indemnify any such Person or otherwise be liable to any such Person hereunder for (i) any Losses incurred 44 45 for or on account of or arising from or in connection with or otherwise with respect to any breach of any representation or warranty set forth in the Pooling and Servicing Agreement a remedy for the breach of which is provided in Section 2.05 or 2.06 of the Pooling and Servicing Agreement or (ii) any Losses asserted by any such Person constituting indirect or consequential damages incurred by such Person. (b) The Servicer shall indemnify and hold harmless each Owner, the Agent, their respective Affiliates and their respective officers, directors, employees, stockholders, agents and representatives, against any and all Losses, as incurred (payable promptly upon written request), for or on account of or arising from or in connection with or otherwise with respect to any breach of any representation or warranty of the Servicer set forth in this Agreement, the Supplement or the Pooling and Servicing Agreement or in any certificate delivered pursuant hereto or thereto; provided, however, that the Servicer shall not be so required to indemnify any such Person or otherwise be liable to any such Person hereunder for (i) any Losses incurred for or on account of or arising from or in connection with or otherwise with respect to any breach of any representation or warranty set forth in the Pooling and Servicing Agreement a remedy for the breach of which is provided in Section 3.03 of the Pooling and Servicing Agreement or (ii) any Losses asserted by any such Person constituting indirect or consequential damages incurred by such Person. SECTION 10.02. Costs and Expenses. The Transferor agrees to pay on demand to (a) the Agent and the Purchaser all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including any amendments, waivers or consents, other than amendments, waivers and consents made solely at the request of the Purchaser or the Agent, as opposed to the Transferor or the Servicer) of this Agreement and the other documents to be delivered hereunder or in connection herewith, including, without limitation, (i) the reasonable fees and out-of-pocket expenses of counsel for each of the Agent and the Purchaser, with respect thereto and with respect to advising each of the Agent and the Purchaser, as to its respective rights 45 46 and remedies under this Agreement and the other documents delivered hereunder or in connection herewith, (ii) rating agency fees, costs and expenses incurred in connection with the purchase by the Purchaser of the Certificates, and (iii) other reasonable fees, costs and expenses incurred by the Purchaser or the Agent in connection with the purchase by the Purchaser of the Certificates (including trustee's fees, costs and expenses), and (b) to the Agent and any other Affected Party, all reasonable costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement, and the other documents delivered hereunder or in connection herewith. 46 47 ARTICLE XI THE AGENT SECTION 11.01. Authorization and Action. (a) Each of the Owners hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and any related agreement, instrument and document as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. The Agent reserves the right, in its sole discretion to exercise any rights and remedies under this Agreement or any related agreement, instrument or document executed and delivered pursuant hereto, or pursuant to applicable law, and also to agree to any amendment, modification or waiver of this Agreement or any related agreement, instrument and document, in each instance, on behalf of the Owners. Notwithstanding anything herein or elsewhere to the contrary, the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. (b) The Purchaser and each subsequent Owner from time to time hereby consents to the registration of the Certificates in the name of the Agent, solely for purposes of administration and convenience, and agrees that in such capacity the Agent shall have no beneficial ownership interest in any Certificate. Without limiting the authorization of and delegation to the Agent set forth in the foregoing Section 11.01(a), it is hereby acknowledged and agreed that all payments in respect of any Certificates and in respect of fees and other amounts owing to the Owners under this Agreement shall, except as otherwise expressly provided herein, be remitted by the applicable payor to the Agent, and the Agent shall distribute all such amounts, promptly following receipt thereof, to the applicable parties in interest according to their respective interests therein, determined by reference to the terms of the Pooling and Servicing Agreement, the Supplement, this Agreement and the Agent's books and records relating to such Certificates, the Pooling and Servicing Agreement, the Supplement and this Agreement (it being agreed that the entries made in such books and records of the 47 48 Agent shall be conclusive and binding for all purposes absent manifest error). SECTION 11.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Agent under or in connection with this Agreement or any related agreement, instrument or document except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Agent: (a) may consult with legal counsel (including counsel for the Transferor, the Servicer or the Trustee), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Owner and shall not be responsible to any Owner for any statements, warranties or representations made in or in connection with this Agreement or in connection with any related agreement, instrument or document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any related agreement, instrument or document on the part of the Transferor, the Servicer or the Trustee or to inspect the property (including the books and records) of the Transferor, the Servicer or the Trustee; (d) shall not be responsible to any Owner for the due execution, legality, validity, enforceability, genuineness or sufficiency of value of this Agreement or any related agreement, instrument or document; (e) shall not be deemed to be acting as any Owner's trustee or otherwise in a fiduciary capacity hereunder or in connection with any related agreement, instrument or document; and (f) shall incur no liability under or in respect of this Agreement or any related agreement, instrument or document by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telex or facsimile) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 11.03. Agent and Affiliates. To the extent that the Agent or any of its Affiliates shall become an Owner, 48 49 the Agent or such Affiliate, in such capacity, shall have the same rights and powers under this Agreement and each related agreement, instrument and document as would any Owner and may exercise the same as though it were not the Agent or such Affiliate, as the case may be. The Agent and its Affiliates may generally engage in any kind of business with the Transferor or the Trustee, any Obligor or any of their respective Affiliates and any Person who may do business with or own securities of any of the foregoing, all as if it were not the Agent or such Affiliate, as the case may be, and without any duty to account therefor to the Owners. SECTION 11.04. Purchase Decision. Each Owner acknowledges that it has, independently and without reliance upon the Agent, any other Owner or any of their respective Affiliates, and based on such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement and to invest in the Certificates (or such interest therein as such Owner may hold). Each Owner also acknowledges that it will, independently and without reliance upon the Agent, any other Owner or any of their respective Affiliates, and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement or any related agreement, instrument or other document. SECTION 11.05. Indemnification. Each Owner (other than the Purchaser) agrees to indemnify the Agent (to the extent not reimbursed by any the Transferor), ratably according to its share of the aggregate outstanding principal balance of the Certificates from time to time, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any related agreement, instrument or document, or any action taken or omitted by the Agent under this Agreement, or any related agreement, instrument or document; provided, however, that an Owner shall not be liable for any portion of such liabilities, obligations, losses, damages, 49 50 penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Owner (including the Purchaser, but only to the extent the Purchaser is reimbursed by the Transferor for such a expenses) agrees to reimburse the Agent, ratably according to its share of the aggregate outstanding principal balance of the Certificates from time to time, promptly upon demand, for any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or and related agreement, instrument or document. SECTION 11.06. Successor Agent. The Agent may resign at any time by giving thirty days' notice thereof to the Owners, the Transferor and the Trustee and such resignation shall become effective upon the appointment and acceptance of a successor Agent as described below. Upon any such resignation, the Owners shall have the right to appoint a successor Agent approved by the Transferor (which approval will not be unreasonably withheld or delayed). If no successor Agent shall have been so appointed by the Owners and accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Owners, appoint a successor Agent approved by the Transferor (which approval will not be unreasonably withheld or delayed), which successor Agent shall be (a) either (i) a commercial bank having a combined capital and surplus of at least $250,000,000 or (ii) an Affiliate of such bank and (b) experienced in the types of transactions contemplated by this Agreement. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder. 50 51 ARTICLE XII MISCELLANEOUS SECTION 12.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Transferor or the Servicer herefrom, shall in any event be effective unless (a) the same shall be in writing and signed by the Transferor, the Servicer, the Required Owners and the Agent, and (b) each Rating Agency then rating the Commercial Paper Notes shall have confirmed that such amendment, waiver or consent will not result in a reduction or withdrawal of its then current rating of such Commercial Paper Notes. Any such amendment, waiver or consent shall be effective in any event only in the specific instance and for the specific purpose for which given. SECTION 12.02. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telecopies, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, as to each party hereto, at its address set forth below or at such other address as shall be designated by such party in a written notice to the other party hereto. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective when deposited in the mails, telecopied, delivered to the telegraph company, confirmed by telex answer back or delivered to the cable company, respectively. If to the Purchaser: Sheffield Receivables Corporation c/o Barclays Bank PLC 222 Broadway New York, New York 10038 Attention: Michael Wade Telephone No.: (212) 412-2812 Telecopier No.: (212) 412-6846 51 52 With a copy to the Agent; If to the Agent: Barclays Bank PLC 222 Broadway New York, New York 10038 Attention: Michael Wade Telephone No.: (212) 412-2812 Telecopier No.: (212) 412-6846; If to the Transferor: NextCard Funding Corp. 595 Market Street Suite 2250 San Francisco, California 94105 Attention: Chief Financial Officer; and If to the Servicer: NextCard, Inc. 595 Market Street Suite 950 San Francisco, California 94105 Attention: Chief Financial Officer Telephone No.: (415) 826-9700 Telecopier No.: (415) 836-9701. SECTION 12.03. No Waiver; Remedies. No failure on the part of any party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 12.04. Binding Effect; Assignability. (a) This Agreement shall be binding upon each of and inure to the benefit of the Transferor, the Servicer, the Agent, the 52 53 Owners and their respective successors and permitted assigns. (b) Neither the Transferor nor the Servicer may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Required Owners and the Agent. (c) An Owner may, at any time, subject to the terms and conditions hereinafter set forth and the terms and conditions of the Supplement, (i) without the consent of the Transferor, assign, or grant undivided participation interests in, any or all of its rights and obligations hereunder or under the Certificates to the Purchaser, any Liquidity Provider, any Enhancement Provider, Barclays or any Permitted Assignee and (ii) with the prior written consent of the Transferor, such consent not to be unreasonably withheld, assign, or grant undivided participation interests in, any or all of its rights and obligations hereunder or under the Certificates to any other Person; provided, however, that (A) without the prior written consent of the Transferor, such consent not to be unreasonably withheld, no participant (other than the Purchaser, a Liquidity Provider, any Enhancement Provider or Barclays) or Affected Party claiming through a participant (other than the Purchaser, a Liquidity Provider, an Enhancement Provider or Barclays) shall be entitled to receive any payment pursuant to Sections 2.07, 2.08, 2.09 or 10.02 in excess of the amount that the Owner granting such participation interest would have been entitled to receive had such participation interest not been sold to such participant; (B) in the case of any transfer by sale, assignment or participation, the transferee as a condition of transfer shall be subject to compliance with subsections 2.09(e) and (f) hereof; (C) the aggregate number of Owners at any time shall not exceed [*] (excluding, if applicable, any Federal Reserve Bank to which a pledge is made); and (D) no assignment or participation hereunder shall be effective unless the Agent shall have first consented thereto in writing, such consent being required for the purpose of assuring compliance with the requirements of this subsection 12.04(c). Any assignment or grant of a participation interest by an Owner pursuant to this subsection 12.04(c) shall be effected pursuant to documentation satisfactory in form and substance to "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 53 54 the Agent. Upon the consummation of any such assignment or sale hereunder, the assignee shall be subject to all of the obligations and entitled to all of the rights and benefits of the assignor hereunder. The Agent shall promptly notify the Transferor of any sale, assignment or participation under this Section 12.04. The Purchaser hereby agrees that promptly following the sale of any assignment or participation by any Liquidity Provider or Enhancement Provider of all or any portion of its rights and obligations under the applicable Liquidity Agreement or Enhancement Agreement, the Purchaser, to the extent that the Transferor's prior consent to such assignment or participation is not required hereunder, shall notify the Transferor thereof, specifying the transferor, the transferee and the extent of the applicable assignment or participation. (d) It is expressly agreed that, in connection with any assignment, sale or other transfer or any proposed assignment, sale or other transfer of any Certificate or any interest therein, each Owner making or proposing to make such assignment, sale or other transfer may provide such information regarding the Receivables, the Trust, the Pooling and Servicing Agreement and the Supplement as such Owner may deem appropriate to any such assignee, purchaser or other transferee or proposed assignee, purchaser or other transferee, as applicable (any such Person being a "Transferee"), of such Certificate or such interest therein, provided, that the Transferor shall have the right to review and participate in the preparation of such information for distribution to any Transferee and, provided, further, that prior to any such disclosure of such information, such Transferee shall have agreed to maintain the confidentiality of such information designated by the Transferor as confidential on substantially the basis set forth in Section 12.10. (e) Except as otherwise expressly provided herein, no Owner shall assign, sell or otherwise transfer any Certificates or any interest therein to any Person unless such Person delivers to the Transferor a duly executed letter substantially in the form of the Investment Letter. (f) The Agent may assign at any time its rights and 54 55 obligations hereunder and interests herein as Agent (i) without the consent of the Owners or the Transferor, to any Affiliate of Barclays and (ii) with the prior written consent of the Transferor (such consent not to be unreasonably withheld), to any other Person. (g) Each Owner may assign and pledge all or a portion of such Owner's interest in the Certificates to any Federal Reserve Bank as collateral to secure any obligation of such Owner to such Federal Reserve Bank. Notwithstanding anything to the contrary herein or in the Supplement, such assignment may be made at any time without notice or other obligation with respect to the assignment, including the delivery of an Investment Letter. (h) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Collection Date; provided, however, that the provisions of Sections 10.01, 10.02, 12.07, 12.09 and 12.10 shall be continuing and shall survive any termination of this Agreement. (i) To the extent that pursuant to the terms of the Supplement or this Agreement, the Transferor has the right to procure a replacement for the Agent or any Owner, and the Person proposed to be replaced is either Barclays or the Purchaser, the Transferor agrees that it shall not be entitled to replace either such Person in any capacity under or in connection with this Agreement or the Supplement unless each of the Purchaser and Barclays is replaced in each and every capacity in which it acts under or in connection with this Agreement and the Supplement. Without limiting the foregoing, each of the Purchaser and the Agent hereby agrees to take all actions necessary to permit a replacement to succeed to its respective rights and obligations hereunder. SECTION 12.05. Certificates as Evidence of Indebtedness. It is the intent of the Transferor, the Purchaser and the other Owners that, for all federal, state, local and foreign taxes, the Certificates will be evidence of indebtedness of the Transferor. Each of the Transferor, the Purchaser and the 55 56 other Owners agrees to treat the Certificates for purposes of all federal, state, local and foreign taxes as indebtedness of the Transferor secured by the Receivables and other assets held in the Trust. SECTION 12.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW PROVISIONS EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. SECTION 12.07. No Proceedings. (a) The Transferor, each Owner and the Agent each hereby agrees that it will not, prior to the date that is one year and one day after the latest maturing commercial paper note, medium term note or other debt instrument issued by the Purchaser has been issued, acquiesce, petition or otherwise invoke or cause the Purchaser to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Purchaser under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Purchaser or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Purchaser. The Transferor, each Owner and the Agent each hereby further agrees that prior to the date that is one year and one day after the latest maturing commercial paper note, medium term note or other debt instrument issued by the Purchaser has been issued, amounts payable by the Purchaser under or in connection with this Agreement as reimbursement for out-of-pocket expenses or indemnification shall be payable only to the extent that payment thereof will not render the Purchaser insolvent and is made from funds of the Purchaser that are freely distributable by the Purchaser at the Purchaser's discretion. (b) Each Owner and the Agent hereby agrees that it will not, prior to the date that is one year and one day after the termination of the Pooling and Servicing Agreement with respect to the Trust or the Transferor, acquiesce, petition or otherwise invoke or cause the Trust or the Transferor to invoke 56 57 the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Trust or the Transferor under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trust or the Transferor or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Trust or the Transferor. Each Owner and the Agent each further agrees that prior to the date that is one year and one day after the termination of the Pooling and Servicing Agreement with respect to the Transferor, amounts payable by the Transferor under or in connection with this Agreement as reimbursement for out-of-pocket expenses or indemnification shall be payable only to the extent that payment thereof will not render the Transferor insolvent and is made from funds of the Transferor that are freely distributable by the Transferor at the Transferor's discretion. (c) The provisions of this Section 12.07 shall survive the termination of this Agreement. SECTION 12.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 12.09. No Recourse. (a) No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of the Purchaser (whether in its capacity as the Purchaser or as an Owner under this Agreement) as contained in this Agreement or any other agreement, instrument or document entered into by it pursuant hereto or in connection herewith shall be had against any incorporator, affiliate, stockholder, officer, employee or director of the Purchaser, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise (except to the extent that recourse against any such Person arises from the 57 58 gross negligence or willful misconduct of such Person); it being expressly agreed and understood that the agreements of the Purchaser contained in this Agreement and all of the other agreements, instruments and documents entered into by it pursuant hereto or in connection herewith are, in each case, solely the corporate obligations of the Purchaser, and that no personal liability whatsoever shall attach to or be incurred by any incorporator, stockholder, affiliate, officer, employee or director of the Purchaser, as such, or any of them, under or by reason of any of the obligations, covenants or agreements of the Purchaser contained in this Agreement or in any other such instruments, documents or agreements, or which are implied therefrom, and that any and all personal liability of each incorporator, stockholder, affiliate, officer, employee or director of the Purchaser, or any of them, for breaches by the Purchaser of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, or by statute or constitution, or otherwise, is hereby expressly waived except to the extent that such personal liability of any such Person arises from the gross negligence or willful misconduct of such Person. (b) The provisions of this Section 12.09 shall survive the termination of this Agreement. SECTION 12.10. Confidentiality. Each Owner and the Agent hereby agrees to take such measures as shall be reasonably requested by the Transferor to protect and maintain the confidentiality of such information relating to the Receivables as such Transferor may from time to time expressly identify to such Owner or the Agent (as the case may be) as confidential information; provided, however, that none of the Owners or the Agent shall be obligated to take or observe any such measure if to do so would, in the reasonable judgment of such Owner or the Agent, as the case may be, (a) be inconsistent with any Requirement of Law or compliance by such Owner or the Agent with any binding request of any regulatory body having jurisdiction over such Owner or the Agent, as the case may be or (b) materially and adversely affect the ability of such Owner or the Agent to perform its obligations hereunder or in connection herewith or to enforce its rights hereunder or in connection herewith. 58 59 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. NEXTCARD FUNDING CORP. By: /s/ JOHN V. HASHMAN ----------------------------------- Name: John V. Hashman Title: Chief Financial Officer NEXTCARD, INC. By: /s/ JOHN V. HASHMAN ----------------------------------- Name: John V. Hashman Title: Chief Financial Officer SHEFFIELD RECEIVABLES CORPORATION By: Barclays Bank PLC, as attorney-in-fact By: /s/ ANDREW SHUSTER ----------------------------------- Name: Andrew Shuster Title: Associate Director BARCLAYS BANK PLC, as the Agent By: /s/ ANDREW SHUSTER ----------------------------------- Name: Andrew Shuster Title: Associate Director Signature Page -- 59 to Certificate Purchase Agreement Dated as of May 21, 1999 (NextCard Master Trust, Series 1999-2) EX-10.7 8 CERTIFICATE PURCHASE AGREEMENT DATED JUNE 16, 1999 1 EXHIBIT 10.7 [Execution Copy] ================================================================================ CERTIFICATE PURCHASE AGREEMENT Dated as of June 16, 1999 among NEXTCARD FUNDING CORP., as the Transferor, NEXTCARD, INC., as the Servicer, HOLLAND LIMITED SECURITIZATION, INC., as the Purchaser, and ING BARING (U.S.) CAPITAL MARKETS LLC, as the Agent ================================================================================ 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1 SECTION 1.01. Terms Defined in the Supplement and the Pooling and Servicing Agreement; Certain Defined Terms 1 SECTION 1.02. Accounting Terms; Other Terms 12 SECTION 1.03. Other Rules of Construction 12 SECTION 1.04. Computation of Time Periods 13 ARTICLE II PURCHASE AND SALE; PURCHASE COMMITMENT 13 SECTION 2.01. Purchase and Sale of the Certificates 13 SECTION 2.02. Purchase Price 13 SECTION 2.03. Increases and Decreases in the Invested Amount 13 SECTION 2.04. Commitment Fee 14 SECTION 2.05. Termination or Reduction of the Facility Limit 14 SECTION 2.06. Calculation and Payment of Monthly Interest and Fees; Selection of Commercial Paper Note Maturities 15 SECTION 2.07. Increased Costs 15 SECTION 2.08. Increased Capital 17 SECTION 2.09. Taxes 18 ARTICLE III CLOSING 22 SECTION 3.01. Closing 22 SECTION 3.02. Transactions to be Effected at the Closing 23 ARTICLE IV PURCHASER CONDITIONS PRECEDENT 23 SECTION 4.01. Conditions Precedent to the Purchase of the Certificates 23 SECTION 4.02. Conditions Precedent to Invested Amount Increases 25 ARTICLE V TRANSFEROR CONDITIONS PRECEDENT 25 SECTION 5.01. Conditions Precedent to the Sale of the Certificates 25 ARTICLE VI REPRESENTATIONS AND WARRANTIES 27 SECTION 6.01. Corporate Existence 27
i 3 SECTION 6.02. Corporate Authority 27 SECTION 6.03. No Consents Required 28 SECTION 6.04. No Violation 28 SECTION 6.05. Financial Statements 28 SECTION 6.06. No Proceeding 29 SECTION 6.07. Trust Indenture Act; Investment Company Act 29 SECTION 6.08. No Pay Out Event or Other Default 29 SECTION 6.09. The Certificates 30 SECTION 6.10. Absence of Material Adverse Change 30 SECTION 6.11. Taxes, Etc 30 SECTION 6.12. Disclosure 30 SECTION 6.13. Year 2000 Plan 30 SECTION 6.14. FICO Scores 31 SECTION 6.15. Location of Offices 31 SECTION 6.16. Pooling and Servicing Representations and Warranties 31 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE AGENT 31 SECTION 7.01. Organization 32 SECTION 7.02. Authority 32 SECTION 7.03. Securities Act 32 SECTION 7.04. Investment Company Act 32 ARTICLE VIII COVENANTS OF THE TRANSFEROR 33 SECTION 8.01. Access to Information 33 SECTION 8.02. Reporting Requirements of the Transferor 33 SECTION 8.03. Optional Repurchase 34 SECTION 8.04. Location of Chief Executive Office 35 ARTICLE IX [RESERVED] 35 ARTICLE X INDEMNIFICATION 35 SECTION 10.01. Indemnification by the Transferor and the Servicer 35 SECTION 10.02. Costs and Expenses 36 ARTICLE XI THE AGENT 37 SECTION 11.01. Authorization and Action 37 SECTION 11.02. Agent's Reliance, Etc. 37 SECTION 11.03. Agent and Affiliates 38 SECTION 11.04. Purchase Decision 38
ii 4 SECTION 11.05. Indemnification 39 SECTION 11.06. Successor Agent 39 ARTICLE XII MISCELLANEOUS 40 SECTION 12.01. Amendments, Etc. 40 SECTION 12.02. Notices, Etc. 40 SECTION 12.03. No Waiver; Remedies 41 SECTION 12.04. Binding Effect; Assignability 42 SECTION 12.05. Certificates as Evidence of Indebtedness 44 SECTION 12.06. Governing Law 44 SECTION 12.07. No Proceedings 45 SECTION 12.08. Execution in Counterparts 46 SECTION 12.09. No Recourse 46 SECTION 12.10. Confidentiality 47
iii 5 CERTIFICATE PURCHASE AGREEMENT dated as of June 16, 1999, among NEXTCARD FUNDING CORP., a Delaware corporation, as the Transferor, NEXTCARD, INC., a Delaware corporation ("NextCard"), as the Servicer, HOLLAND LIMITED SECURITIZATION, INC., a Delaware corporation (the "Purchaser") and ING BARING (U.S.) CAPITAL MARKETS LLC, ("ING Capital"), as agent (in such capacity, the "Agent") for the Purchaser and the other "Owners" (as defined below). In consideration of the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Terms Defined in the Supplement and the Pooling and Servicing Agreement; Certain Defined Terms. Unless otherwise defined herein, terms defined in the Supplement (as defined below) or the Pooling and Servicing Agreement (as defined below) are used herein with the meanings ascribed to them therein. In addition, as used herein, the following terms shall have the following meanings: "Act" shall mean the Securities Act of 1933. "Additional Amounts" shall mean, for each Interest Period, an amount equal to the sum of (a) the aggregate amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09 in respect of such Interest Period and (b) the aggregate of such amounts with respect to prior Interest Periods which remain unpaid. "Affected Party" shall mean the Purchaser, the Agent, ING Bank, each Liquidity Provider, any permitted assignee of the Purchaser or any Liquidity Provider, any Enhancement Provider and any assignee of any Enhancement Provider. "Agreement" shall mean this agreement and any supplements, amendments, exhibits and schedules hereto. "Alternative Rate" shall mean, with respect to any Interest Period (or portion thereof), an interest rate per annum equal to the Eurodollar Rate (Reserve Adjusted) unless the Transferor, following consultation with the Agent, specifies in writing that the "Alternative Rate" for any 6 Interest Period shall be the Alternate Base Rate; provided, however, that: (a) if the Required Owners shall notify the Agent prior to the related rate determination date that a Eurodollar Rate Disruption Event has occurred and is continuing, then the "Alternative Rate" for such Interest Period (or portion thereof) shall be an interest rate per annum equal to the Alternate Base Rate in effect from time to time during such Interest Period (or portion thereof) unless the Agent and the Transferor agree in writing to a different rate; (b) if any Owner shall have notified the Agent on or before the applicable rate determination date that the Eurodollar Rate for any Interest Period (or portion thereof) does not accurately reflect the cost to such Owners of funding their respective investments in the Certificates for such Interest Period (or portion thereof), then the "Alternative Rate" with respect to such Owner's share of the outstanding principal balance of the Certificates for such Interest Period (or portion thereof) shall be an interest rate per annum equal to the Alternate Base Rate in effect from time to time during such Interest Period (or portion thereof) unless (i) such Owner is the Purchaser and the commercial paper rating on the Commercial Paper Notes has been downgraded to a level less than A-1 from Standard & Poor's and F-1 from Fitch for reasons unrelated to the investment of the Purchaser in the Certificates or (ii) the Agent and the Transferor agree in writing to a different rate; and (c) if for any reason the Alternative Rate becomes applicable on notice to the Agent of less than three Business Days (determined giving effect to clause (b) of the definition of "Business Day"), the "Alternative Rate" shall be the Alternate Base Rate in effect from time to time during the period prior to the satisfaction of such three Business Days' notice requirement (determined giving effect to clause (b) of the definition of "Business Day"). "Alternate Base Rate" shall mean, on any date, a fluctuating rate of interest per annum equal to the sum of (a) the Applicable Margin and (b) the highest of: 2 7 (i) the arithmetic average of the rates of interest publicly announced by The Chase Manhattan Bank, Citibank, N.A. and Morgan Guaranty Trust Company of New York (or their respective successors) as their respective prime commercial lending rates (or, as to any such bank that does not announce such a rate, such bank's "base" or other rate determined by the Agent to be the equivalent rate announced by such bank), except that, if any such bank shall, for any period, cease to announce publicly its prime commercial lending (or equivalent) rate, the Agent shall, during such period, determine a rate for purposes of this clause (a) based upon the prime commercial lending (or equivalent) rates announced publicly by the other such banks; it being understood, further, that (A) the prime commercial lending (or equivalent) rates used in computing a rate for purposes of this clause (i) are not intended to be the lowest rates of interest charged by such banks in connection with extensions of credit to debtors and (B) the rate determined pursuant to this clause (i) shall change as and when such banks' prime commercial lending (or equivalent) rates change; and (ii) the Federal Funds Rate plus 0.50%. "Applicable Margin" shall have the meaning specified in the Fee Letter. "Breakage Costs" means, for each Owner for each funding period, to the extent that an Owner is funding the maintenance of its investment in the Invested Amount during such funding period through the issuance of Commercial Paper Notes or at the Eurodollar Rate (Reserve Adjusted), during which the amount of such investment is reduced (in whole or in part) prior to the end of the period for which it was originally scheduled to remain outstanding, whether as a result of the commencement of a Limited Amortization Period or otherwise (the amount of such reduced investment being referred to as the "Allocated Amount"), the excess of (a) the discount or interest that would have accrued on the Allocated Amount during the remainder of such funding period if such reduction had not occurred over (b) the income scheduled to be received by such Owner from investing the Allocated Amount for the remainder of such funding period, it being understood that in investing such Allocated Amount such Owner will, but without limitation to its discretion, endeavor to minimize the associated Breakage Costs. 3 8 "Business Day" shall mean a day that is (a) a "Business Day" under and as defined in the Pooling and Servicing Agreement and (b) when used in connection with the Eurodollar Rate, a day on which dealings in Dollars are carried on in the London interbank market and, if the Eurodollar Rate is being determined pursuant to the second sentence of the definition of "Eurodollar Rate," in the eurodollar interbank market of the Agent's Eurodollar Office. "Certificate Documents" shall mean the Pooling and Servicing Agreement, the Series 1999-1 Supplement, each Receivables Purchase Agreement and the Certificates. "Certificate Rate" shall mean, for any Interest Period, the Cost of Funds for such Interest Period, adjusted, as necessary, to yield, when applied to the outstanding principal balance of the Certificates, an amount sufficient to pay interest on the incremental effective principal balance of any funding resulting from the capitalization of interest during such Interest Period; provided, however, to the extent that a Pay Out Event (other than a Pay Out Event occurring pursuant to Section 6.01(n) or (o) of the Supplement) is continuing for all or any portion of any Interest Period, the Certificate Rate for such Interest Period shall be increased by a percentage equal to the product of (a) 2.00% and (b) a fraction having as its numerator, the number of days in such Interest Period that such Pay Out Event was continuing, and as its denominator, 360. On the Business Day immediately preceding each Determination Date, the Agent shall notify the Servicer and the Trustee of the Certificate Rate for the related Interest Period. "Closing" shall have the meaning set forth in Section 3.01. "Closing Date" shall have the meaning set forth in Section 3.01. "Collection Date" shall mean the earliest Business Day following the termination (as opposed to suspension) of the Revolving Period on which the Invested Amount shall have been reduced to zero and all other amounts due to the Owners shall have been paid in full. "Commercial Paper Notes" shall mean short-term promissory notes issued or to be issued by the Purchaser to 4 9 fund its investments in accounts receivable and other financial assets. "Commitment Fee Rate" shall have the meaning specified in the Fee Letter. "Cost of Funds" shall mean, for any Interest Period, the weighted average (based upon time and dollar amount) of the following rates applicable during such Interest Period for each Owner: (a) to the extent such Owner is the Purchaser and funds its share of the outstanding principal balance of the Certificates for such Interest Period by issuing Commercial Paper Notes, a rate equal to the CP Rate for such Interest Period and (b) to the extent such Owner either (i) is not the Purchaser or (ii) is the Purchaser and funds its share of the Invested Amount for such Interest Period other than by issuing Commercial Paper Notes, a rate equal to the Alternative Rate for such Interest Period or such other rate as the Agent and the Transferor shall agree to in writing. "CP Rate" shall mean with respect to any Interest Period (or portion thereof), the sum of (a) the Applicable Margin and (b) the per annum rate calculated to yield the "weighted average cost" (as defined below) related to the issuance of Commercial Paper Notes that are allocated, in whole or in part by the Purchaser (or by the Agent) to fund or maintain its interest in the Certificates during such Interest Period (or portion thereof) and all interests in receivables or other financial assets of "Other Pool Transferors" (as defined below), if any, held by the Purchaser; provided, however, that if any component of such rate is a discount rate, in calculating the "CP Rate" for such Interest Period (or portion thereof) the Purchaser shall for such component use the rate resulting from converting such discount rate to an interest-bearing equivalent rate per annum. As used in this definition, (a) the Purchaser's "weighted average cost" for any Interest Period means the sum of (i) the actual interest paid to purchasers of the applicable Commercial Paper Notes, (ii) the commissions of placement agents and dealers in respect of such Commercial Paper Notes; provided, however, that such commissions shall not exceed [*] of the outstanding face amount of such Commercial Paper Notes from time to time unless the Agent shall have provided the Transferor with prior notice that such commissions will exceed such amount, and (iii) other borrowings by the Purchaser (other than under any Liquidity Agreement), including to fund small or odd dollar amounts that are not easily accommodated "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 5 10 in the commercial paper market and (b) "Other Pool Transferors" means all other Persons that transfer interests (including security interests) in receivables or other financial assets to the Purchaser to the extent that such interests in receivables or other financial assets are aggregated with the interest of the Purchaser in the Certificates and funded on a pooled basis by the Purchaser; and provided, further, that at all times following the occurrence of a Pay Out Event, the "CP Rate" for any Interest Period (or portion thereof) shall be the Alternative Rate in effect from time to time. "Discount Amount" shall mean at any time an amount equal to: FL - FL --------------- Discount Factor where: FL = the Facility Limit in effect on the date of determination Discount Factor = [*], or such other number (equal to or greater than 1.00) designated by the Agent to the Transferor. "Dollars" or "$" shall mean lawful money of the United States. "Enhancement Agreement" shall mean and include any agreement (other than any Liquidity Agreement) outstanding from time to time for the benefit of the Purchaser providing for the issuance of one or more letters of credit or surety bonds for the account of the Purchaser, the making of loans to the Purchaser or any other extensions of credit to or for the account of the Purchaser to support all or any part of the Purchaser's payment obligations under its Commercial Paper Notes or to provide an alternate means of funding the Purchaser's investments in accounts receivable or other financial assets, in each case, as amended, supplemented or otherwise modified from time to time. "Enhancement Provider" shall mean and include ING Capital, ING Bank and any other or additional bank, financial guaranty insurance company or other financial institution now or hereafter extending credit or having a commitment to extend "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 6 11 credit to or for the account of the Purchaser under an Enhancement Agreement so long as such other or additional bank, financial guaranty insurance company or other financial institution is, at the time of each extension of such credit and each incurrence of a commitment to extend such credit, ING Capital, ING Bank or a Person consented to in writing by the Transferor (such consent not to be unreasonably withheld). "Eurocurrency Liabilities" shall have the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Office" shall mean such office or offices through which the Agent determines the Eurodollar Rate. A Eurodollar Office of the Agent may be, at the option of the Agent, either a domestic or foreign office. "Eurodollar Rate" shall mean, with respect to any Interest Period (or portion thereof), a per annum rate of interest equal to the rate shown on page 3750 of the Dow Jones & Company Telerate screen or any successor page as the composite offered rate for London interbank deposits for a period approximating such Interest Period (or portion thereof), as shown under the heading "USD" as of 11:00 A.M. (London time) on the second Business Day before (and for value on) the first day of such Interest Period (or portion thereof). In the event no such rate appears, the Eurodollar Rate shall be, with respect to any Interest Period, the per annum rate of interest at which Dollar deposits in immediately available funds are offered to the Eurodollar Office of the Agent by prime banks in the interbank eurodollar market at or about 10:00 a.m., London time, on the second Business Day before (and for value on) the first day of such Interest Period (or portion thereof) and in an amount of not less than $1,000,000 for such Interest Period (or portion thereof). "Eurodollar Rate (Reserve Adjusted)" shall mean, with respect to any Interest Period (or portion thereof), the sum of (a) the Applicable Margin and (b) the per annum rate of interest (rounded upward, if necessary, to the nearest whole multiple of 1/16th of one percent per annum) determined by dividing (i) the Eurodollar Rate for such Interest Period (or portion thereof) by (ii) one minus the Eurodollar Reserve Percentage (expressed as a decimal) applicable during such Interest Period (or portion thereof). 7 12 "Eurodollar Rate Disruption Event" shall mean, for any Owner for any Interest Period, any of the following: (a) a determination by such Owner that it would be contrary to law or to the directive of any central bank or other Governmental Authority to obtain Dollars in the London interbank market to fund or maintain its investment in the Certificates for such Interest Period or (b) the inability of such Owner by reason of circumstances affecting the London interbank market generally, to obtain Dollars in such market to fund its investment in the Certificates for such Interest Period. "Eurodollar Reserve Percentage" shall mean, with respect to any Interest Period (or portion thereof), the reserve percentage (rounded upwards, if necessary, to the nearest 1/16th of one percent per annum) applicable during such Interest Period (or portion thereof) (or, if more than one such percentage shall be so applicable during such Interest Period, the daily average of such percentages for those days in such Interest Period (or portion thereof) during which any such percentages shall be in effect) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for banks or other financial institutions subject to such regulations with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period (or portion thereof). "Excluded Taxes" shall have the meaning specified in Section 2.09(a). "Facility Limit" shall mean, at any time, $150,000,000, as such amount may be reduced from time to time pursuant to Section 2.05. "Federal Bankruptcy Code" shall mean the bankruptcy code of the United States of America codified in Title 11 of the United States Code. "Federal Funds Rate" shall mean, for any period, a fluctuating per annum interest rate for each day during such period equal to (a) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such no such rate is published 8 13 for such day because such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "Fee Letter" shall mean the letter agreement of even date herewith, among the Transferor, NextCard, the Purchaser and the Agent, regarding certain fees payable by the Transferor under or in connection with this Agreement, as the same may be amended, restated or otherwise modified from time to time. "Governmental Actions" shall mean any and all consents, approvals, permits, orders, authorizations, waivers, exceptions, variances, exemptions or licenses of, or registrations, declarations or filings with, any Governmental Authority required under any Governmental Rules. "Governmental Authority" shall mean the United States of America, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, whether of the United States of America, any state or other political subdivision thereof or any other domestic or foreign jurisdiction. "Governmental Rules" shall mean any and all laws, statutes, codes, rules, regulations, ordinances, orders, writs, decrees and injunctions of any Governmental Authority and any and all legally binding conditions, standards, prohibitions, requirements and judgments of any Governmental Authority. "ING Bank" shall mean ING Bank, N.V. "ING Capital" shall have the meaning set forth in the preamble hereto. "Interpretation" as used in Sections 2.07 and 2.08 hereof with respect to any law or regulation shall mean the interpretation or application of such law or regulation by any Governmental Authority (including, without limitation, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government), 9 14 central bank, accounting standards board, financial services industry advisory body or any comparable entity. "Liquidity Agreement" shall mean and include (a) the Liquidity Agreement of even date herewith among the Purchaser, ING Capital, and the Liquidity Providers supporting the Purchaser's payment obligations with respect to the Commercial Paper Notes issued to fund its purchase or maintenance of the Certificates hereunder, as amended, supplemented or otherwise modified from time to time, and (b) any other agreement outstanding from time to time for the benefit of the Purchaser providing for the sale by the Purchaser of undivided percentage interests in the Certificates or the making of loans or other extensions of credit to support all or part of the Purchaser's payment obligations under the Commercial Paper Notes issued to fund its purchase or maintenance of the Certificates or to provide an alternate means of funding the Purchaser's investment in the Certificates hereunder, and under which the amount available from such sale or such extension of credit is limited to an amount calculated by reference to the value or eligible unpaid balance of such Certificates or any portion thereof or the level of credit enhancement available with respect thereto, in each case as amended, supplemented or otherwise modified from time to time. "Liquidity Provider" shall mean a financial institution providing liquidity support to or for the account of the Purchaser pursuant to or in connection with a Liquidity Agreement, so long as, at the time of each extension of such support and each incurrence of a commitment to extend such support, such financial institution is ING Capital, ING Bank or a Person consented to in writing by the Transferor (such consent not to be unreasonably withheld). "Losses" shall have the meaning set forth in Section 10.01. "Monthly Interest" shall mean with respect to any Distribution Date, an amount equal to the sum of (a) the product of (i) the Certificate Rate in effect with respect to the Interest Period ending immediately prior to such Distribution Date, (ii) the average daily principal balance of the Certificates during such Interest Period, and (iii) a fraction the numerator of which is the actual number of days in such Interest Period and the denominator of which is 360, plus (b) all Breakage Costs incurred by Owners during the immediately preceding Interest Period. 10 15 "Other Taxes" shall mean any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment or deposit required to be made hereunder, under the Pooling and Servicing Agreement or the Supplement or from the execution, delivery or registration of, or otherwise with respect to, any of the foregoing. "Owner" shall mean the Purchaser and all other owners by assignment, participation or otherwise of a Certificate or any interest therein. "Pooling and Servicing Agreement" shall mean the Amended and Restated Pooling and Servicing Agreement dated as of May 21, 1999, among the Transferor, the Servicer and the Trustee, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Purchase Commitment" shall mean the commitment of the Purchaser to acquire interests in the Certificates in a maximum aggregate principal amount outstanding from time to time not to exceed the excess of the Facility Limit at such time (as such amount may be reduced from time to time pursuant to Section 2.05) over the Discount Amount at such time. "Purchase Commitment Termination Date" shall mean the earlier of (a) the Business Day preceding the day on which the Scheduled Amortization Period commences and (b) the Business Day preceding the day on which the Early Amortization Period commences. "Purchase Price" shall have the meaning set forth in Section 2.02. "Required Owners" shall mean, at any time, those Owners owning interests in Certificates aggregating 66-2/3% of the aggregate unpaid principal balance of the Certificates at such time. "Supplement" shall mean the Series 1999-1 Supplement dated as of June 16, 1999, among the Transferor, the Servicer and the Trustee. "Taxes" shall have the meaning set forth in Section 2.09(a). 11 16 "Transferor" shall have the meaning specified in the preamble hereto. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction. "Year 2000 Plan" shall have the meaning set forth in Section 6.13. "Year 2000 Problem" shall have the meaning set forth in Section 6.13. SECTION 1.02. Accounting Terms; Other Terms. Any accounting terms used in this Agreement shall, unless otherwise specifically provided, have the meanings customarily given to them in accordance with generally accepted United States accounting principles or United States regulatory accounting principles, as applicable, as in effect from time to time, and all financial computations hereunder shall, unless otherwise specifically provided, be computed in accordance with generally accepted United States accounting principles or United States regulatory accounting principles, as applicable, as in effect from time to time, consistently applied. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.03. Other Rules of Construction. References in this Agreement to sections, schedules and exhibits are to sections of and schedules and exhibits to this Agreement unless otherwise indicated. The words "hereof", "herein", "hereunder" and comparable terms refer to the entirety of this Agreement and not to any particular article, section or other subdivision hereof or attachment hereto. Words in the singular include the plural and in the plural include the singular. Unless the context otherwise requires, the word "or" is not exclusive. The word "including" shall be deemed to mean "including, without limitation". The section and article headings and table of contents contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Except as otherwise specified herein, all references herein (a) to any Person shall be deemed to include such Person's successors and assigns and (b) to any Governmental Rule or contract specifically defined or referred to herein shall be deemed references to such Governmental Rule or contract as the same may be supplemented, amended, waived, consolidated, 12 17 replaced or modified from time to time, but only to the extent permitted by, and effected in accordance with, the terms thereof. SECTION 1.04. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." ARTICLE II PURCHASE AND SALE; PURCHASE COMMITMENT SECTION 2.01. Purchase and Sale of the Certificates. On the terms and subject to the conditions set forth in this Agreement, and in reliance on the covenants, representations, warranties and agreements herein set forth, the Transferor agrees to sell, transfer and deliver to the Purchaser, at the Closing, and the Purchaser agrees to purchase from the Transferor, at the Closing, the Certificates. SECTION 2.02. Purchase Price. The Certificates are to be purchased at an initial purchase price (the "Purchase Price") of $0, representing 100% of the Initial Invested Amount. Upon satisfaction of the conditions to closing set forth in Articles IV and V, the Purchase Price is to be remitted to the Transferor in immediately available funds by wire transfer pursuant to written instructions to be provided to the Agent at least five Business Days prior to the Closing Date. SECTION 2.03. Increases and Decreases in the Invested Amount. (a) Subject to the terms and conditions of Section 4.10 of the Supplement, the Purchaser hereby agrees from the Closing Date to (but not including) the Purchase Commitment Termination Date to fund any Invested Amount Increase requested by the Transferor from the Purchaser in accordance with the procedures described in Section 4.10 of the Supplement; provided, however, that at no time shall the aggregate outstanding principal amount of the Certificates allocable to the Purchaser exceed the Purchase Commitment. On the date of the applicable Invested Amount Increase, the Purchaser shall remit to the Agent, in immediately available funds, the amount of such Invested Amount Increase, whereupon 13 18 the Agent will remit such amount, in immediately available funds, to the Transferor in accordance with such payment instructions as the Transferor shall have delivered in writing to the Agent at least one Business Day prior to the date of such Invested Amount Increase. (b) The Invested Amount may be decreased from time to time in accordance with the procedures described in the Supplement and, so long as the Purchase Commitment Termination Date has not occurred, subsequently increased in accordance with the requirements of this Agreement and Section 4.10 of the Supplement. (c) Notwithstanding anything to the contrary contained herein, if any Invested Amount Increase is not made on the date specified by the Transferor in its written request therefor delivered pursuant to Section 4.10 of the Supplement, the Transferor shall indemnify each Affected Party against any reasonable loss, cost or expense incurred by such Affected Party as a result of such occurrence, including, without limitation, any reasonable loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Affected Party to fund such anticipated Invested Amount Increase. SECTION 2.04. Commitment Fee. From and after the Closing Date until the Purchase Commitment Termination Date, the Transferor shall pay to the Purchaser a commitment fee equal to the product of (a) the average daily amount of the excess of (i) the Purchase Commitment over (ii) the aggregate outstanding principal amount of all Certificates held by or for the benefit of the Purchaser and (b) the Commitment Fee Rate, payable in arrears on each Distribution Date. SECTION 2.05. Termination or Reduction of the Facility Limit. Upon at least five Business Days' notice to the Purchaser, the Transferor may terminate in whole or reduce in part the unused portion of the Facility Limit; provided, however, that (i) any such reduction in part shall be in a minimum amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) if, after giving effect to such reduction, the Facility Limit would be less than $100,000,000, such reduction shall be either in such smaller amount as will not cause the Facility Limit to be less than $100,000,000, or in an amount sufficient to reduce the Facility Limit to zero. 14 19 SECTION 2.06. Calculation and Payment of Monthly Interest and Fees; Selection of Commercial Paper Note Maturities. (a) The amount of interest payable on each Distribution Date in respect of Certificates shall equal the Monthly Interest for such Distribution Date. The Agent shall notify the Servicer, the Trustee and the Purchaser, on the Business Day preceding each Determination Date, of the Monthly Interest for the related Distribution Date and the Certificate Rate for the related Interest Period. (b) Out of the Monthly Interest received by the Agent for each Interest Period as contemplated in Section 11.01(b), the Agent shall remit to each Owner an amount of interest equal to the product of (i) such Owner's cost of funds and (ii) such Owner's allocable share of the Invested Amount during such Interest Period, plus the amount of any Breakage Costs applicable to such Owner in respect of such Distribution Date. (c) All computations of interest, fees and other amounts under this Agreement shall be made on the basis of a year of 360 days and the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. (d) The Purchaser (or the Agent on its behalf) shall select the maturities of Commercial Paper Notes allocated to fund or maintain the Purchaser's interest in the Certificates in consultation with the Transferor; provided, however, that (i) no such Commercial Paper Note shall in any event mature more than 90 days after the date it is issued and (ii) notwithstanding the Agent's agreement to consult with the Transferor in selecting maturities for such Commercial Paper Notes, the Agent, on behalf of the Purchaser, shall retain full and absolute discretion to select such maturities. SECTION 2.07. Increased Costs. (a) If due to the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the Interpretation of any law or regulation or the imposition of any guideline or request from any central bank or other Governmental Authority after the date hereof, there shall be an increase in the cost to an Affected Party of making, funding or maintaining any 15 20 investment in the Certificates or any interest therein or of agreeing to purchase or invest in the Certificates or any interest therein, as the case may be (other than by reason of any Interpretation of or change in laws or regulations relating to Taxes or Excluded Taxes, such Affected Party shall promptly submit to the Transferor, the Servicer and the Agent a certificate setting forth in reasonable detail, the calculation of such increased costs incurred by such Affected Party. In determining such amount, such Affected Party may use any reasonable averaging and attribution methods, consistent with the averaging and attribution methods generally used by such Affected Party in determining amounts of this type. The amount of increased costs set forth in such certificate (which certificate shall, in the absence of manifest error, be prima facie evidence as to such amount) shall be included in the Additional Amounts for (a) the first full Interest Period immediately succeeding the date on which the certificate specifying the amount owing was delivered and (b) to the extent remaining outstanding, each Interest Period thereafter until paid in full. The Agent shall, out of amounts received by it (as contemplated in Section 11.01(b)) in respect of the Additional Amounts on any Distribution Date (as contemplated in Section 11.01(b)), pay to each Affected Party, any increased costs due pursuant to this Section 2.07, provided, however, that if the amount distributable in respect of the Additional Amounts on any Distribution Date is less than the aggregate amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09 for the corresponding Interest Period, the resulting shortfall shall be allocated among such Affected Parties on a pro rata basis (determined by the amount owed to each). Failure on the part of any Affected Party to demand compensation for any amount pursuant to this Section 2.07 for any period shall not constitute a waiver of such Affected Party's right to demand compensation for such period; provided, however, that no Affected Party shall be entitled to compensation for any such amount relating to any period ending more than six months prior to the date that such Affected Party notifies the Transferor, the Servicer and the Agent in writing thereof. (b) Each Owner agrees that it shall use its best efforts to take (or cause any Affected Party claiming through such Owner to take) such steps as would eliminate or reduce the amount of any increased costs described in this Section 2.07 incurred by such Owner or Affected Party; provided that no such steps shall be required to be taken if, in the reasonable judgment of such Owner or Affected Party, such 16 21 steps would be disadvantageous to such Owner or Affected Party or inconsistent with its internal policy and legal and regulatory restrictions. To the extent that, notwithstanding such efforts, any Owner that is a Liquidity Provider (or any Affected Party claiming through an Owner that is a Liquidity Provider) is unable to eliminate such increased costs and makes a demand hereunder, the Purchaser may replace such Liquidity Provider with another commercial bank satisfactory to the Purchaser, the Agent and the Transferor; provided, however, that the Purchaser shall be under no obligation to so replace a Liquidity Provider requesting any amount under this Section 2.07, and shall in no event replace such Liquidity Provider if it is ING Capital. SECTION 2.08. Increased Capital. (a) If the introduction of or any change in or in the Interpretation of any law or regulation or the imposition of any guideline or request from any central bank or other Governmental Authority, in each case, after the date hereof, affects or would affect the amount of capital required or expected to be maintained by any Affected Party, and such Affected Party determines that the amount of such capital is increased as a result of (i) the existence of the Purchaser's agreement to make or maintain an investment in the Certificates or any interest therein and other similar agreements or facilities, or (ii) the existence of any agreement by Affected Parties to make or maintain an investment in the Certificates or any interest therein or to fund any such investment and any other commitments of the same type, such Affected Party shall promptly submit to the Transferor, the Servicer and the Agent a certificate setting forth the additional amounts required to compensate such Affected Party in light of such circumstances. In determining such amount, such Affected Party may use any reasonable averaging and attribution methods, consistent with the averaging and attribution methods generally used by such Affected Party in determining amounts of this type. The amount set forth in such certificate (which certificate shall, in the absence of manifest error, be prima facie evidence as to such amount) shall be included in the Additional Amounts for (a) the first full Interest Period immediately succeeding the date on which the certificate specifying the amount owing was delivered and (b) to the extent remaining outstanding, each Interest Period thereafter until paid in full. The Agent shall, out of amounts received by it in respect of the Additional Amounts on any Distribution Date (as contemplated in Section 11.01(b)), pay to each Affected Party any amount due pursuant to this Section 2.08, provided, however, that if 17 22 the amount distributable in respect of the Additional Amounts on any Distribution Date is less than the aggregate amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09 for the corresponding Interest Period, the resulting shortfall shall be allocated among such Affected Parties on a pro rata basis (determined by the amount owed to each). Failure on the part of any Affected Party to demand compensation for any amount pursuant to this Section 2.08 for any period shall not constitute a waiver of such Affected Party's right to demand compensation for such period; provided, however, that no Affected Party shall be entitled to compensation for any such amount relating to any period ending more than six months prior to the date that such Affected Party notifies the Transferor, the Servicer and the Agent in writing thereof. (b) Each Owner agrees that it shall use its best efforts to take (or cause any Affected Party claiming through such Owner to take) such steps as would eliminate or reduce the amount of any increased costs described in this Section 2.08 incurred by such Owner or Affected Party; provided that no such steps shall be required to be taken if, in the reasonable judgment of such Owner or Affected Party, such steps would be disadvantageous to such Owner or Affected Party or inconsistent with its internal policy and legal and regulatory restrictions. To the extent that, notwithstanding such efforts, any Owner that is a Liquidity Provider (or any Affected Party claiming through an Owner that is a Liquidity Provider) is unable to eliminate such amount in respect of which compensation is payable pursuant to this Section 2.08 and makes a demand hereunder, the Purchaser may replace such Liquidity Provider with another commercial bank satisfactory to the Purchaser, the Agent and the Transferor; provided, however, that the Purchaser shall be under no obligation to so replace a Liquidity Provider requesting any amount under this Section 2.08, and shall in no event replace such Liquidity Provider if it is ING Capital. SECTION 2.09. Taxes. (a) Subject to subsection 2.09(d), any and all payments and deposits required to be made hereunder or under the Pooling and Servicing Agreement or the Supplement by the Transferor or the Trustee to or for the benefit the Agent or any Owner shall be made, to the extent allowed by law, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed by any Governmental Authority, 18 23 excluding, in the case of each Owner and the Agent, (x) taxes, levies, imposts, deductions, charges or withholdings imposed on, or measured by reference to, the net income of such Owner or the Agent, as applicable, franchise taxes imposed on such Owner or the Agent, as applicable (including, without limitation, branch profits taxes, minimum taxes and taxes computed under alternative methods, at least one of which is based on net income), and any other taxes (other than withholding taxes not imposed by section 1446 of the Code and Other Taxes), levies, imposts, deductions, charges or withholdings based or imposed on income or the receipts or gross receipts of such Owner or the Agent, as applicable, in each case, by any of (i) the United States or any State thereof, (ii) the state or foreign jurisdiction under the laws of which such Owner or the Agent, as applicable, is organized, with which it has a present or former connection (other than solely by reason of this Agreement), or in which it is otherwise doing business or (iii) any political subdivision thereof; (y) any taxes, levies, imposts, duties, charges or fees to the extent of any credit or other benefit actually realized by such Agent or Owner, as applicable, as a result thereof; and (z) any taxes, levies, imposts, duties, charges or fees imposed as a result of a change by the Agent or Owner, as applicable, of the office in which all or any part of its interest in the Certificates is acquired, accounted for or booked (all such excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being referred to herein as "Excluded Taxes" and all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being referred to herein as "Taxes"). If the Transferor or the Trustee shall be required by law to deduct any Taxes from or in respect of any sum required to be paid or deposited hereunder to or for the benefit any Owner or the Agent, then, to the extent provided in subsection 2.09(d), (i) such sum shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.09), such Owner or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Transferor or the Trustee (as appropriate) shall make such deductions and (iii) the Transferor or the Trustee (as appropriate) shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) To the extent provided in subsection 2.09(d), each Owner and the Agent shall be reimbursed for the full 19 24 amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts otherwise payable under this Section 2.09) paid by such Owner or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Each Owner and the Agent agrees to promptly notify the Transferor and the Servicer of any payment of such Taxes or Other Taxes made by it and, if practicable, any request, demand or notice received in respect thereof prior to such payment. In addition, in the event any Owner is required, in accordance with and pursuant to the terms of any agreement or other document providing liquidity support, credit enhancement or other similar support to such Owner in connection with the Certificates or the funding or maintenance of an interest therein, to compensate a bank or other financial institution in respect of taxes under circumstances similar to those described in this Section 2.09, then, to the extent provided in subsection 2.09(d), such Owner shall be reimbursed for any such compensation so paid by it. A certificate as to the amount of any indemnification pursuant to this subsection 2.09(b) submitted to the Transferor by such Owner or the Agent, as the case may be, setting forth in reasonable detail the basis for and the calculation thereof, shall (absent manifest error) be prima facie evidence as to such amount. (c) Within 30 days after the date of any payment of Taxes or Other Taxes, the Transferor will furnish to the Agent the original or a certified receipt evidencing payment thereof. (d) Any amounts payable to an Owner or the Agent pursuant to this Section 2.09 shall be included in the Additional Amounts for (i) in the case of amounts payable pursuant to subsection 2.09(a), the Interest Period in respect of which the payment subject to withholding is made, (ii) in the case of amounts payable pursuant to subsection 2.09(b), the first full Interest Period immediately succeeding the date on which the certificate specifying the amount owing was delivered and (iii) in either case, to the extent remaining outstanding, each Interest Period thereafter until paid in full. The Agent shall, out of amounts received by it in respect of the Additional Amounts on any Distribution Date (as contemplated in Section 11.01(b)), pay to each Owner and itself, as applicable, any reimbursement due pursuant to this Section 2.09, provided, however, that if the amount distributable in respect of the Additional Amounts on any 20 25 Distribution Date is less than the aggregate amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09 for the corresponding Interest Period, the resulting shortfall shall be allocated among such Affected Parties on a pro rata basis (determined by the amount owed to each). (e) The Agent and each Owner (i) that is organized under the laws of a jurisdiction outside the United States hereby agrees to complete, execute and deliver to the Trustee from time to time prior to the initial Distribution Date on which such Person will be entitled to receive distributions pursuant to the Supplement and this Agreement, Internal Revenue Service form 4224 (or any successor form), (ii) at the request of the Transferor, hereby agrees to complete, execute and deliver to the Trustee from time to time prior to the initial Distribution Date on which such Person will be entitled to receive distributions pursuant to the Supplement and this Agreement, Internal Revenue Service form W-9 (or any successor form), and (iii) hereby agrees to complete, execute and deliver to the Trustee from time to time prior to the initial Distribution Date on which such Person will be entitled to receive distributions pursuant to the Supplement and this Agreement, such other forms or certificates as may be required under the laws of any applicable jurisdiction in order to permit the Transferor or the Trustee to make payments to, and deposit funds to or for the account of, such Person hereunder and under the Pooling and Servicing Agreement and the Supplement without any deduction or withholding for or on account of any United States tax. Each of the Agent and each Owner agrees to provide like additional subsequent duly executed forms on or before the date that any such form expires or becomes obsolete, or upon the occurrence of any event requiring an amendment, resubmission or change in the most recent form previously delivered by it and to provide such extensions or renewals as may be reasonably requested by the Transferor or the Trustee. Each of the Agent and the Owner certifies, represents and warrants that as of the date of this Agreement, or in the case of an Owner which is an assignee as of the date of such assignment, that (i) it is entitled (x) to receive payments under this Agreement without deduction or withholding of any United States federal income taxes (other than taxes subject to withholding pursuant to Code Section 1446) and (y) to an exemption from United States backup withholding tax and (ii) it will pay any taxes attributable to its ownership of an interest in the Certificates. Each of the Agent and each Owner further agrees that compliance with this subsection 2.09(e) (including by 21 26 reason of subsection 12.04(c) in the case of any sale or assignment of any interest in Certificates) is a condition to the payment of any amount otherwise due pursuant to subsections 2.09(a) and 2.09(b) hereof. Notwithstanding anything to the contrary herein, each of the Paying Agent, Servicer and Trustee shall be entitled to withhold any amount that it reasonably determines in its sole discretion is required to be withheld pursuant to section 1446 of the Code and such amount shall be deemed to have been paid to the Agent or Owner, as applicable, for all purposes of the Agreement. (f) Any Owner entitled to the payment of any additional amount pursuant to this Section 2.09 shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to take such steps as would eliminate or reduce the amount of such payment; provided that no such steps shall be required to be taken if, in the reasonable judgment of such Owner, such steps would be materially disadvantageous to such Owner. To the extent that, notwithstanding such efforts, any Owner that is a Liquidity Provider is unable to eliminate an amount payable under this Section 2.09 and makes a demand hereunder, the Purchaser shall use its reasonable efforts to replace such Liquidity Provider with another commercial bank satisfactory to the Purchaser, the Agent and the Transferor; provided, however, that the Purchaser shall be under no obligation to so replace such Liquidity Provider if it is ING Capital. (g) Without prejudice to the survival of any other agreement of the Transferor hereunder, the agreements and obligations of the Transferor contained in this Section 2.09 shall survive the termination of this Agreement. ARTICLE III CLOSING SECTION 3.01. Closing. The Closing (the "Closing") of the purchase and sale of the Certificates shall take place at the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, at 10:00 a.m. (Eastern Daylight Time), on June 23, 1999, or, if the conditions to closing set forth in Articles IV and V of this Agreement shall not have been satisfied or waived by such date, as soon as practicable after such conditions shall have been satisfied or waived, or at such other time, date and 22 27 place as the parties shall agree upon (the date of the Closing being referred to herein as the "Closing Date"). SECTION 3.02. Transactions to be Effected at the Closing. At the Closing, (a) the Purchaser will deliver to the Transferor (by wire transfer of immediately available funds to a bank account designated by the Transferor at least two Business Days prior to the Closing Date) an amount equal to $0, representing full and complete payment of the Purchase Price and (b) the Transferor shall deliver the Certificates to the Agent on behalf of the Purchaser. ARTICLE IV PURCHASER CONDITIONS PRECEDENT SECTION 4.01. Conditions Precedent to the Purchase of the Certificates. The obligation of the Purchaser to purchase and pay for the Certificates on the Closing Date is subject to the satisfaction at the time of the Closing of the following conditions: (a) Performance by the Transferor. All the terms, covenants, agreements and conditions of this Agreement, the Pooling and Servicing Agreement and the Supplement to be complied with and performed by the Transferor by the Closing shall have been complied with and performed in all material respects. (b) Representations and Warranties. Each of the representations and warranties of the Transferor made in this Agreement, the Pooling and Servicing Agreement and the Supplement shall be true and correct in all material respects as of the time of the Closing as though made as of such time (except to the extent they expressly relate to an earlier time). (c) Officers' Certificate. The Agent shall have received from the Transferor, in form and substance reasonably satisfactory to the Purchaser and the Agent, an Officer's Certificate, dated the Closing Date, certifying as to the satisfaction of the conditions set forth in subsections 4.01(a) and 4.01(b). (d) Certain Opinions of Counsel. The Agent shall have received from Orrick, Herrington & Sutcliffe LLP, acting 23 28 as counsel to the Transferor, the Servicer and/or certain other parties, as applicable, favorable opinions, dated the Closing Date and reasonably satisfactory in form and substance to the Purchaser, the Agent and their counsel. (e) Opinion of Counsel to the Trustee. The Agent shall have received from McGuire, Woods, Battle & Boothe LLP, counsel to the Trustee, a favorable opinion, dated the Closing Date and reasonably satisfactory in form and substance to the Purchaser, the Agent and their counsel. (f) Financing Statements. The Agent shall have received evidence reasonably satisfactory to the Purchaser and the Agent that, on or before the Closing Date, UCC-1 financing statements have been filed in the offices of the Secretary of State or comparable offices of the applicable states and in the appropriate office or offices in such other locations as may be specified in the relevant opinions of counsel delivered pursuant to subsection 4.01(d) and in such other jurisdictions as its counsel deems appropriate, reflecting the assignments contemplated by such opinions of counsel and the respective interests of the applicable parties. (g) Ratings. Each of Fitch and Standard & Poor's shall have confirmed in writing to the Purchaser that the purchase by the Purchaser of its interest in the Certificates would not result in the reduction or withdrawal of the then current rating of the Commercial Paper Notes. (h) Reserve Account. The Reserve Account shall have been established in accordance with the requirements of Section 4.11 of the Supplement. (i) Pooling and Servicing Agreement et al. The Agent and the Purchaser shall have received a fully executed copy of each of the Pooling and Servicing Agreement, the Supplement and the other instruments, documents and agreements required to be delivered thereunder. Each of the Pooling and Servicing Agreement and the Supplement shall have been duly authorized, executed and delivered by the Transferor, the Servicer, and the Trustee, and shall be in full force and effect on the Closing Date. (j) No Actions or Proceedings. No action, suit, proceeding or investigation by or before any Governmental Authority shall have been instituted to restrain or prohibit the consummation by the Transferor, the Agent or the Purchaser 24 29 of, or to invalidate, the transactions contemplated by this Agreement, the Supplement or any of the Liquidity Agreements or Enhancement Agreements in any material respect. (k) Approvals and Consents. All Governmental Actions of Governmental Authorities required by the Agent, the Purchaser or the Transferor with respect to the transactions contemplated by this Agreement, the Supplement and the Liquidity Agreements and Enhancement Agreements shall have been obtained or made. (l) Commercial Paper Market. The commercial paper market shall be available to the Purchaser at the time of the Closing. (m) Payment of Fees. All fees required to be paid to the Agent or the Purchaser in connection with the Closing pursuant to the Fee Letter shall have been paid. (n) Other Documents. The Transferor shall have furnished to the Purchaser or the Agent, as the case may be, such other information, certificates and documents as the Purchaser, the Agent or their counsel may reasonably request. SECTION 4.02. Conditions Precedent to Invested Amount Increases. The obligation of the Purchaser to make any Invested Amount Increase is subject to the satisfaction, as of the applicable Increase Date, of each of the applicable Increase Conditions and the other applicable conditions specified herein. ARTICLE V TRANSFEROR CONDITIONS PRECEDENT SECTION 5.01. Conditions Precedent to the Sale of the Certificates. The obligation of the Transferor to sell the Certificates to the Agent on the Closing Date for the benefit of the Purchaser and the subsequent Owners from time to time is subject to the satisfaction at the time of the Closing of the following conditions: (a) Performance by the Purchaser and the Agent. All the terms, covenants, agreements and conditions of this Agreement to be complied with and performed by the Purchaser 25 30 or the Agent, as the case may be, by the Closing shall have been complied with and performed in all material respects. (b) Representations and Warranties. Each of the representations and warranties of each of the Purchaser and the Agent made in this Agreement shall be true and correct in all material respects as of the time of the Closing as though made as of such time (except to the extent they expressly relate to an earlier time). (c) Officer's Certificate. The Transferor shall have received from the Purchaser, in form and substance reasonably satisfactory to the Transferor, a certificate signed by an officer of the Purchaser, dated the Closing Date, certifying as to the satisfaction of the conditions set forth in subsections 5.01(a) and 5.01(b). (d) Opinions of Counsel to the Purchaser and the Agent. The Transferor shall have received from (i) Sidley & Austin, counsel to the Purchaser, a favorable opinion, dated the Closing Date and reasonably satisfactory in form and substance to the Transferor and its counsel and (ii) from internal counsel to the Agent, a favorable opinion, dated the Closing Date and reasonably satisfactory in form and substance to the Transferor and its counsel. (e) Opinion of Counsel to the Trustee. The Transferor shall have received from McGuire, Woods, Battle & Boothe LLP, counsel to the Trustee, a favorable opinion, dated the Closing Date and reasonably satisfactory in form and substance to the Transferor and its counsel. (h) No Actions or Proceedings. No action, suit, proceeding or investigation by or before any Governmental Authority shall have been instituted to restrain or prohibit the consummation by the Transferor, the Agent or the Purchaser of, or to invalidate, the transactions contemplated by this Agreement in any material respect. (i) Approvals and Consents. All Governmental Actions of Governmental Authorities required by the Purchaser, the Agent or the Transferor with respect to the transactions contemplated by this Agreement shall have been obtained or made. (j) Other Documents. The Purchaser or the Agent, as applicable, shall have furnished to the Transferor such 26 31 other information, certificates and documents as the Transferor or its counsel may reasonably request. ARTICLE VI REPRESENTATIONS AND WARRANTIES Each of the Transferor and the Servicer hereby represents and warrants to the Owners and the Agent with respect to itself (giving effect, in the case of any Successor Servicer, any successor to the Transferor or any Additional Transferor, to such changes to Section 6.01 as may be necessary to reflect accurately the incorporation or other formation of such Successor Servicer, successor to the Transferor or Additional Transferor) as of the date of this Agreement, as of the Closing Date, and as of (and as a condition to any Invested Amount Increase occurring on) each Increase Date (but excluding, in the case of any Increase Date, Section 6.05), in each case with reference to the facts and circumstances then existing, as follows: SECTION 6.01. Corporate Existence. The Transferor is a corporation validly existing and in good standing under the laws of the State of Delaware, with full power and authority under such laws 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 this Agreement and each Certificate Document to which it is a party. The Servicer is a corporation validly existing and in good standing under the laws of the State of Delaware, with full power and authority under such laws 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 this Agreement and each Certificate Document to which it is a party. SECTION 6.02. Corporate Authority. The Transferor or the Servicer, as applicable, has the corporate power, authority and right to make, execute, deliver and perform this Agreement and each Certificate Document to which it is a party and all the transactions contemplated hereby and thereby and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and each Certificate Document to which it is a party; and, when executed and delivered, each of this Agreement and the 27 32 Certificate Documents to which it is a party will constitute its legal, valid and binding obligation, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, receivership, conservatorship and other laws of general applicability relating to or affecting creditors' rights generally from time to time in effect. The enforceability of its obligations under such agreements is also subject to general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law, and no representation or warranty is made with respect to the enforceability of its obligations under any indemnification provisions in such agreements to the extent that indemnification is sought in connection with securities laws violations and is contrary to public policy. SECTION 6.03. No Consents Required. No consent, license, approval or authorization of, or registration with, any Governmental Authority is required to be obtained by the Transferor or the Servicer, as applicable, in connection with the execution, delivery or performance by the Transferor or the Servicer, as applicable, of each of this Agreement and the Certificate Documents that has not been duly obtained and which is not and will not be in full force and effect on the Closing Date or the relevant Increase Date, as applicable. SECTION 6.04. No Violation. The execution, delivery and performance of each of this Agreement and the Certificate Documents do not violate any provision of any existing law or regulation applicable to the Transferor or the Servicer, as applicable, any order or decree of any court or other judicial authority to which it is subject, its charter or By-laws or any mortgage, indenture, contract or other agreement to which it is a party or by which it or any significant portion of its properties is bound (other than violations of such laws, regulations, orders, decrees, mortgages, indentures, contracts and other agreements which, individually or in the aggregate, would not have a material adverse effect on the Transferor's or the Servicer's, as applicable, ability to perform its obligations under, or the validity or enforceability of, this Agreement or the Certificate Documents). SECTION 6.05. Financial Statements. Prior to the Closing Date, the Transferor has delivered or caused to be delivered to the Agent complete and correct copies of, (a) the audited consolidated balance sheet of NextCard and its 28 33 subsidiaries as of December 31, 1998, and the related audited consolidated statements of income and cash flows of NextCard and its subsidiaries for the fiscal year then ended, accompanied by the opinion of NextCard's independent certified public accountants and (b) the unaudited consolidated balance sheet of NextCard and its subsidiaries as of March 31, 1999, and the related unaudited consolidated statements of income and cash flows of NextCard and its subsidiaries for the fiscal quarter then ended. Such financial statements are complete and correct in all material respects and fairly present the financial condition of NextCard and its subsidiaries as of their respective dates and the results of operations of NextCard and its subsidiaries for the applicable periods then ended, subject to year-end adjustments in the case of unaudited information, all in accordance with generally accepted accounting principles or regulatory accounting principles, as applicable, consistently applied. SECTION 6.06. No Proceeding. There is no action, litigation or proceeding before any court, tribunal or governmental body presently pending or, to the knowledge of the Transferor or the Servicer, as applicable, threatened against the Transferor or the Servicer, as applicable, with respect to this Agreement, the Certificate Documents, the transactions contemplated hereby or thereby or the issuance of the Certificates, and there is no such litigation or proceeding against it or any significant portion of its properties which would have a material adverse effect on the transactions contemplated by, or its ability to perform its obligations under, this Agreement or any Certificate Document to which it is a party. SECTION 6.07. Trust Indenture Act; Investment Company Act. Neither the Pooling and Servicing Agreement nor the Supplement is required to be qualified under the Trust Indenture Act of 1939, and neither the Trust nor the Transferor is required to be registered under the Investment Company Act of 1940, as amended. SECTION 6.08. No Pay Out Event or Other Default. No Pay Out Event or Servicer Default has occurred and is continuing, both before and immediately after giving effect to the purchase or issuance of the Certificates or the relevant Invested Amount Increase, as applicable, and no event, act or omission has occurred and is continuing which, with the lapse 29 34 of time, the giving of notice, or both, would constitute a Pay Out Event or Servicer Default. SECTION 6.09. The Certificates. The Certificates have been duly and validly authorized, and, when executed and authenticated in accordance with the terms of the Pooling and Servicing Agreement and the Supplement and delivered to the Agent in accordance with this Agreement, will be duly and validly issued and outstanding, and will be entitled to the benefits of, as applicable, this Agreement and the applicable Certificate Documents. SECTION 6.10. Absence of Material Adverse Change. Since December 31, 1998, there has not been any material adverse change in the condition (financial or otherwise) of NextCard that has not been disclosed in writing by the Transferor or NextCard to the Agent. SECTION 6.11. Taxes, Etc. Any taxes, fees and other charges of Governmental Authorities imposed upon the Transferor or the Servicer, as applicable, in connection with the execution, delivery and performance by the Transferor or the Servicer, as applicable, of this Agreement, the Pooling and Servicing Agreement, the Supplement and, the Certificates or otherwise in connection with the Trust have been paid or will be paid by the Transferor or the Servicer, as applicable, at or prior to the Closing Date or the relevant Increase Date, as applicable, to the extent then due. SECTION 6.12. Disclosure. All written factual information heretofore furnished by the Transferor, the Servicer or any of their respective representatives to the Agent or any Owner or any of their representatives for purposes of or in connection with this Agreement, including, without limitation, information relating to the Accounts and Receivables and the Transferor's credit card businesses, was true and correct in all material respects on the (a) date such information was furnished by the Transferor or the Servicer, as applicable, or (b) if such information specifically relates to an earlier date, on such earlier date. SECTION 6.13. Year 2000 Plan. Each of the Transferor and the Servicer have reviewed the areas within its business and operations that could reasonably be expected to be adversely affected by, and have developed a plan (the "Year 2000 Plan") to address on a timely basis, the risk that computer applications used to process any data related to this 30 35 Agreement (whether by the Transferor, the Servicer or any of their respective suppliers or vendors) may produce materially adverse consequences in performing date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (such risk being referred to herein as the "Year 2000 Problem"). Each of the Transferor and the Servicer is taking or causing to be taken reasonable measures to address the Year 2000 Problem on a timely basis. To the best of the Transferor's and the Servicer's knowledge, the Year 2000 Problem will not materially and adversely affect the interests of the Owners under this Agreement, the Supplement and the Pooling and Servicing Agreement. SECTION 6.14. FICO Scores. As of the Closing Date, no more than [*] of the Accounts (calculated on the basis of the amount of outstanding Principal Receivables relating to the Accounts on the dates they became Accounts) have related Obligors with FICO Scores as of the date of the origination of their Accounts of less than [*]. SECTION 6.15. Location of Offices. The Transferor's principal place of business and chief executive office is located in the State of California, or such other jurisdiction with respect to which the requirements specified in Section 8.05 hereof have been satisfied. SECTION 6.16. Pooling and Servicing Representations and Warranties. Its representations and warranties in Sections 2.03 and 2.04 (in the case of a Transferor) or Section 3.03 (in the case of the Servicer) of the Pooling and Servicing Agreement are true and correct in all material respects as of the dates they were made (unless they specifically refer to an earlier date, in which case they were true and correct on such earlier date). ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE AGENT Each of the Purchaser and the Agent hereby represents and warrants to the Transferor as to itself as of the date of this Agreement and as of the Closing Date as follows: "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 31 36 SECTION 7.01. Organization. The Purchaser has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. The Agent has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware. SECTION 7.02. Authority. The Purchaser or the Agent, as applicable, has the corporate power, authority and right to make, execute, deliver and perform this Agreement and all the transactions contemplated hereby and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement; and, when executed and delivered, this Agreement will constitute its legal, valid and binding obligation, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, receivership, conservatorship and other laws of general applicability relating to or affecting creditors' rights generally from time to time in effect. The enforceability of its obligations under this Agreement is also subject to general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law, and no representation or warranty is made with respect to the enforceability of its obligations under any indemnification provisions in such agreements to the extent that indemnification is sought in connection with securities laws violations and is contrary to public policy. SECTION 7.03. Securities Act. The Certificates purchased by the Agent for the benefit of the Purchaser pursuant to this Agreement will be acquired for investment only and not with a view to any public distribution thereof, and neither the Purchaser nor the Agent will offer to sell or otherwise dispose of any Certificates so acquired by it (or any interest therein) in violation of any of the registration requirements of the Act or any applicable state or other securities laws. Each of the Purchaser and the Agent acknowledges that it has no right to require the Transferor to register under the Act or any other securities law any Certificates to be acquired by the Agent for the benefit of the Purchaser or any other Owner pursuant to this Agreement. Each of the Agent and the Purchaser will execute and deliver to the Transferor on or before the Closing Date an Investment Letter with respect to the purchase of the Certificates. SECTION 7.04. Investment Company Act. Neither the Purchaser nor the Agent is subject to registration as an 32 37 "investment company" within the meaning of the Investment Company Act of 1940, as amended. ARTICLE VIII COVENANTS OF THE TRANSFEROR SECTION 8.01. Access to Information. From the Closing Date until the Collection Date, each of the Transferor and the Servicer will, at any time and from time to time during regular business hours, on at least five Business Days' (or if a Pay Out Event or Servicer Default or event that with the giving of notice or lapse of time or both would constitute a Pay Out Event or Servicer Default, has occurred, one Business Day's) notice to the Transferor or the Servicer, as the case may be, permit the Agent or any Owner, or its agents or representatives, at the Agent's or such Owner's expense (or if a Pay Out Event or Servicer Default or event that with the giving of notice or lapse of time or both would constitute a Pay Out Event or Servicer Default, has occurred, at the expense of the Transferor in the case of a Pay Out Event or the Servicer in the case of a Servicer Default), (a) to examine all books, records and documents (including computer tapes and disks) in the possession or under the control of the Transferor or the Servicer, as the case may be, relating to the Receivables (other than names of account holders and strategic plans for the Servicer's credit card business), including the forms of Credit Card Agreements under which such Receivables arise, and (b) to visit the offices and properties of the Transferor or the Servicer, as applicable, for the purpose of examining such materials described in clause (a) above. SECTION 8.02. Reporting Requirements of the Transferor. From the Closing Date until the Collection Date, the Transferor will furnish to the Agent: (a) a copy of each certificate, report, statement, notice or other communication furnished by or on behalf of the Transferor or the Servicer to the Trustee or any Rating Agency, or any Series Enhancer (other than investment instructions or any such item furnished to the Trustee or any Rating Agency relating solely to one or more Series other than Series 1999-1), concurrently therewith, and promptly after receipt thereof, a copy of each notice, demand or other communication received by or 33 38 on behalf of the Transferor or the Servicer under the Pooling and Servicing Agreement or the Supplement (other than any such item relating solely to one or more Series other than Series 1999-1); (b) copies of all material amendments to any Receivables Transfer Agreement; (c) prompt notice of any failure on the part of any party thereto to observe or perform any material term of any Receivables Transfer Agreement; (d) (i) within 90 days following the end of each fiscal year of NextCard, beginning with the fiscal year ending December 31, 1999, the audited consolidated balance sheet of NextCard and its subsidiaries as of the end of such fiscal year, and the related audited consolidated statements of income and cash flows of NextCard and its subsidiaries for such fiscal year, accompanied by the opinion of nationally-recognized independent certified public accountants and (ii) within 45 days following the end of each fiscal quarter of NextCard, beginning with the fiscal quarter ending June 30, 1999, the unaudited consolidated balance sheet of NextCard and its subsidiaries as of the end of such fiscal quarter, and the related unaudited consolidated statements of income and cash flows of NextCard and its subsidiaries for such fiscal quarter; and (e) such publicly available information, documents, records or reports respecting NextCard, the Transferor, any Account Owner or the condition or operations, financial or otherwise, of NextCard, the Transferor or any Account Owner as the Agent or any Owner may from time to time reasonably request; and (f) such other information, documents, records or reports respecting the Accounts, the Receivables or the servicing thereof or the Trust as the Agent or any Owner may from time to time reasonably request; SECTION 8.03. Optional Repurchase. The Transferor shall not exercise its right to repurchase the Certificates pursuant to Section 7.01 of the Supplement and Section 12.05 of the Pooling and Servicing Agreement unless the Owners and the Agent have been paid, or will be paid upon such repurchase, the outstanding principal balance of the 34 39 Certificates, all interest thereon and all other amounts owing hereunder in full. SECTION 8.04. Location of Chief Executive Office. The Transferor shall not move its principal place of business and chief executive office to a location outside the State of California unless it shall have given the Agent at least 30 days' prior written notice of such relocation and shall have executed and filed such UCC financing statements and other items and delivered such opinions as the Agent deems reasonably necessary to maintain the Trustee's perfected security interest in the Receivables. ARTICLE IX [RESERVED] ARTICLE X INDEMNIFICATION SECTION 10.01. Indemnification by the Transferor and the Servicer. (a) The Transferor shall indemnify and hold harmless each Owner, the Agent, their respective Affiliates and their respective officers, directors, employees, stockholders, agents and representatives, against any and all losses, claims, damages, liabilities or reasonable expenses (including legal and accounting fees) (collectively, "Losses"), as incurred (payable promptly upon written request), for or on account of or arising from or in connection with or otherwise with respect to any breach of any representation or warranty of the Transferor set forth in this Agreement, the Supplement or the Pooling and Servicing Agreement or in any certificate delivered pursuant hereto or thereto; provided, however, that the Transferor shall not be so required to indemnify any such Person or otherwise be liable to any such Person hereunder for (i) any Losses incurred for or on account of or arising from or in connection with or otherwise with respect to any breach of any representation or warranty set forth in the Pooling and Servicing Agreement a remedy for the breach of which is provided in Section 2.05 or 2.06 of the Pooling and Servicing Agreement or (ii) any Losses asserted by any such Person constituting indirect or consequential damages incurred by such Person. 35 40 (b) The Servicer shall indemnify and hold harmless each Owner, the Agent, their respective Affiliates and their respective officers, directors, employees, stockholders, agents and representatives, against any and all Losses, as incurred (payable promptly upon written request), for or on account of or arising from or in connection with or otherwise with respect to any breach of any representation or warranty of the Servicer set forth in this Agreement, the Supplement or the Pooling and Servicing Agreement or in any certificate delivered pursuant hereto or thereto; provided, however, that the Servicer shall not be so required to indemnify any such Person or otherwise be liable to any such Person hereunder for (i) any Losses incurred for or on account of or arising from or in connection with or otherwise with respect to any breach of any representation or warranty set forth in the Pooling and Servicing Agreement a remedy for the breach of which is provided in Section 3.03 of the Pooling and Servicing Agreement or (ii) any Losses asserted by any such Person constituting indirect or consequential damages incurred by such Person. SECTION 10.02. Costs and Expenses. The Transferor agrees to pay on demand to (a) the Agent and the Purchaser all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including any amendments, waivers or consents, other than amendments, waivers and consents made solely at the request of the Purchaser or the Agent, as opposed to the Transferor or the Servicer) of this Agreement and the other documents to be delivered hereunder or in connection herewith, including, without limitation, (i) the reasonable fees and out-of-pocket expenses of counsel for each of the Agent and the Purchaser, with respect thereto and with respect to advising each of the Agent and the Purchaser, as to its respective rights and remedies under this Agreement and the other documents delivered hereunder or in connection herewith, (ii) rating agency fees, costs and expenses incurred in connection with the purchase by the Purchaser of the Certificates, and (iii) other reasonable fees, costs and expenses incurred by the Purchaser or the Agent in connection with the purchase by the Purchaser of the Certificates (including trustee's fees, costs and expenses), and (b) to the Agent and any other Affected Party, all reasonable costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement, and the other documents delivered hereunder or in connection herewith. 36 41 ARTICLE XI THE AGENT SECTION 11.01. Authorization and Action. (a) Each of the Owners hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and any related agreement, instrument and document as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. The Agent reserves the right, in its sole discretion to exercise any rights and remedies under this Agreement or any related agreement, instrument or document executed and delivered pursuant hereto, or pursuant to applicable law, and also to agree to any amendment, modification or waiver of this Agreement or any related agreement, instrument and document, in each instance, on behalf of the Owners. Notwithstanding anything herein or elsewhere to the contrary, the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. (b) The Purchaser and each subsequent Owner from time to time hereby acknowledges and agrees that all payments in respect of any Certificates and in respect of fees and other amounts owing to the Owners under this Agreement shall, except as otherwise expressly provided herein, be remitted by the applicable payor to the Agent on behalf of the Owners, and the Agent shall distribute all such amounts, promptly following receipt thereof, to the applicable parties in interest according to their respective interests therein, determined by reference to the terms of the Pooling and Servicing Agreement, the Supplement, this Agreement and the Agent's books and records relating to such Certificates, the Pooling and Servicing Agreement, the Supplement and this Agreement (it being agreed that the entries made in such books and records of the Agent shall be conclusive and binding for all purposes absent manifest error). SECTION 11.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Agent under or in connection with this Agreement or any related agreement, instrument or document except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Agent: (a) may consult with legal counsel (including counsel for the Transferor, the 37 42 Servicer or the Trustee), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Owner and shall not be responsible to any Owner for any statements, warranties or representations made in or in connection with this Agreement or in connection with any related agreement, instrument or document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any related agreement, instrument or document on the part of the Transferor, the Servicer or the Trustee or to inspect the property (including the books and records) of the Transferor, the Servicer or the Trustee; (d) shall not be responsible to any Owner for the due execution, legality, validity, enforceability, genuineness or sufficiency of value of this Agreement or any related agreement, instrument or document; (e) shall not be deemed to be acting as any Owner's trustee or otherwise in a fiduciary capacity hereunder or in connection with any related agreement, instrument or document; and (f) shall incur no liability under or in respect of this Agreement or any related agreement, instrument or document by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telex or facsimile) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 11.03. Agent and Affiliates. To the extent that the Agent or any of its Affiliates shall become an Owner, the Agent or such Affiliate, in such capacity, shall have the same rights and powers under this Agreement and each related agreement, instrument and document as would any Owner and may exercise the same as though it were not the Agent or such Affiliate, as the case may be. The Agent and its Affiliates may generally engage in any kind of business with the Transferor or the Trustee, any Obligor or any of their respective Affiliates and any Person who may do business with or own securities of any of the foregoing, all as if it were not the Agent or such Affiliate, as the case may be, and without any duty to account therefor to the Owners. SECTION 11.04. Purchase Decision. Each Owner acknowledges that it has, independently and without reliance upon the Agent, any other Owner or any of their respective Affiliates, and based on such documents and information as it has deemed appropriate, made its own evaluation and decision 38 43 to enter into this Agreement and to invest in the Certificates (or such interest therein as such Owner may hold). Each Owner also acknowledges that it will, independently and without reliance upon the Agent, any other Owner or any of their respective Affiliates, and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement or any related agreement, instrument or other document. SECTION 11.05. Indemnification. Each Owner (other than the Purchaser) agrees to indemnify the Agent (to the extent not reimbursed by any the Transferor), ratably according to its share of the aggregate outstanding principal balance of the Certificates from time to time, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any related agreement, instrument or document, or any action taken or omitted by the Agent under this Agreement, or any related agreement, instrument or document; provided, however, that an Owner shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Owner (including the Purchaser, but only to the extent the Purchaser is reimbursed by the Transferor for such a expenses) agrees to reimburse the Agent, ratably according to its share of the aggregate outstanding principal balance of the Certificates from time to time, promptly upon demand, for any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or and related agreement, instrument or document. SECTION 11.06. Successor Agent. The Agent may resign at any time by giving thirty days' notice thereof to the Owners, the Transferor and the Trustee and such resignation shall become effective upon the appointment and acceptance of a successor Agent as described below. Upon any such resignation, the Owners shall have the right to appoint a successor Agent approved by the Transferor (which approval 39 44 will not be unreasonably withheld or delayed). If no successor Agent shall have been so appointed by the Owners and accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Owners, appoint a successor Agent approved by the Transferor (which approval will not be unreasonably withheld or delayed), which successor Agent shall be (a) either (i) a commercial bank having a combined capital and surplus of at least $250,000,000 or (ii) an Affiliate of such bank and (b) experienced in the types of transactions contemplated by this Agreement. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder. ARTICLE XII MISCELLANEOUS SECTION 12.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Transferor or the Servicer herefrom, shall in any event be effective unless (a) the same shall be in writing and signed by the Transferor, the Servicer, the Required Owners and the Agent, and (b) each Rating Agency then rating the Commercial Paper Notes shall have confirmed that such amendment, waiver or consent will not result in a reduction or withdrawal of its then current rating of such Commercial Paper Notes. Any such amendment, waiver or consent shall be effective in any event only in the specific instance and for the specific purpose for which given. SECTION 12.02. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telecopies, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, as to each party hereto, at its address set forth below or at such other address as shall be designated by such party in a written notice to the other party hereto. All such notices 40 45 and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective when deposited in the mails, telecopied, delivered to the telegraph company, confirmed by telex answer back or delivered to the cable company, respectively. If to the Purchaser: Holland Limited Securitization, Inc. c/o ING Baring (U.S.) Capital Markets LLC 55 East 52nd Street New York, New York 10055 Telephone No.: (212) 409-1895 Telecopier No.: (212) 409-1251 With a copy to the Agent; If to the Agent: ING Baring (U.S.) Capital Markets LLC 55 East 52nd Street New York, New York 10055 Telephone No.: (212) 409-1895 Telecopier No.: (212) 409-1251 If to the Transferor: NextCard Funding Corp. 595 Market Street Suite 2250 San Francisco, California 94105 Attention: Chief Financial Officer; and If to the Servicer: NextCard, Inc. 595 Market Street Suite 950 San Francisco, California 94105 Attention: Chief Financial Officer Telephone No.: (415) 826-9700 Telecopier No.: (415) 836-9701. SECTION 12.03. No Waiver; Remedies. No failure on the part of any party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right 41 46 hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 12.04. Binding Effect; Assignability. (a) This Agreement shall be binding upon each of and inure to the benefit of the Transferor, the Servicer, the Agent, the Owners and their respective successors and permitted assigns. (b) Neither the Transferor nor the Servicer may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Required Owners and the Agent. (c) An Owner may, at any time, subject to the terms and conditions hereinafter set forth and the terms and conditions of the Supplement, (i) without the consent of the Transferor, assign, or grant undivided participation interests in, any or all of its rights and obligations hereunder or under the Certificates to the Purchaser, any Liquidity Provider, any Enhancement Provider or ING Capital and (ii) with the prior written consent of the Transferor, such consent not to be unreasonably withheld, assign, or grant undivided participation interests in, any or all of its rights and obligations hereunder or under the Certificates to any other Person; provided, however, that (A) without the prior written consent of the Transferor, such consent not to be unreasonably withheld, no participant (other than the Purchaser, a Liquidity Provider, any Enhancement Provider or ING Capital) or Affected Party claiming through a participant (other than the Purchaser, a Liquidity Provider, an Enhancement Provider or ING Capital) shall be entitled to receive any payment pursuant to Sections 2.07, 2.08, 2.09 or 10.02 in excess of the amount that the Owner granting such participation interest would have been entitled to receive had such participation interest not been sold to such participant; (B) in the case of any transfer by sale, assignment or participation, the transferee as a condition of transfer shall be subject to compliance with subsections 2.09(e) and (f) hereof; (C) the aggregate number of Owners at any time shall not exceed [*] (excluding, if applicable, any Federal Reserve Bank to which a pledge is made); and (D) no assignment or participation hereunder shall be effective unless the Agent shall have first consented thereto in writing, such consent being required for the purpose of assuring compliance with the requirements of this subsection 12.04(c). Any assignment or grant of a "An asterisk [*] indicates that certain information has been omitted from this agreement pursuant to a request for confidential treatment and has been filed separately with the Securities and Exchange Commission." 42 47 participation interest by an Owner pursuant to this subsection 12.04(c) shall be effected pursuant to documentation satisfactory in form and substance to the Agent. Upon the consummation of any such assignment or sale hereunder, the assignee shall be subject to all of the obligations and entitled to all of the rights and benefits of the assignor hereunder. The Agent shall promptly notify the Transferor of any sale, assignment or participation under this Section 12.04. The Purchaser hereby agrees that promptly following the sale of any assignment or participation by any Liquidity Provider or Enhancement Provider of all or any portion of its rights and obligations under the applicable Liquidity Agreement or Enhancement Agreement, the Purchaser, to the extent that the Transferor's prior consent to such assignment or participation is not required hereunder, shall notify the Transferor thereof, specifying the transferor, the transferee and the extent of the applicable assignment or participation. (d) It is expressly agreed that, in connection with any assignment, sale or other transfer or any proposed assignment, sale or other transfer of any Certificate or any interest therein, each Owner making or proposing to make such assignment, sale or other transfer may provide such information regarding the Receivables, the Trust, the Pooling and Servicing Agreement and the Supplement as such Owner may deem appropriate to any such assignee, purchaser or other transferee or proposed assignee, purchaser or other transferee, as applicable (any such Person being a "Transferee"), of such Certificate or such interest therein, provided, that the Transferor shall have the right to review and participate in the preparation of such information for distribution to any Transferee and, provided, further, that prior to any such disclosure of such information, such Transferee shall have agreed to maintain the confidentiality of such information designated by the Transferor as confidential on substantially the basis set forth in Section 12.10. (e) Except as otherwise expressly provided herein, no Owner shall assign, sell or otherwise transfer any Certificates or any interest therein to any Person unless such Person delivers to the Transferor a duly executed letter substantially in the form of the Investment Letter. (f) The Agent may assign at any time its rights and obligations hereunder and interests herein as Agent (i) without the consent of the Owners or the Transferor, to any 43 48 Affiliate of ING Capital and (ii) with the prior written consent of the Transferor (such consent not to be unreasonably withheld), to any other Person. (g) Each Owner may assign and pledge all or a portion of such Owner's interest in the Certificates to any Federal Reserve Bank as collateral to secure any obligation of such Owner to such Federal Reserve Bank. Notwithstanding anything to the contrary herein or in the Supplement, such assignment may be made at any time without notice or other obligation with respect to the assignment, including the delivery of an Investment Letter. (h) This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Collection Date; provided, however, that the provisions of Sections 10.01, 10.02, 12.07, 12.09 and 12.10 shall be continuing and shall survive any termination of this Agreement. (i) To the extent that pursuant to the terms of the Supplement or this Agreement, the Transferor has the right to procure a replacement for the Agent or any Owner, and the Person proposed to be replaced is either ING Capital or the Purchaser, the Transferor agrees that it shall not be entitled to replace either such Person in any capacity under or in connection with this Agreement or the Supplement unless each of the Purchaser and ING Capital is replaced in each and every capacity in which it acts under or in connection with this Agreement and the Supplement. Without limiting the foregoing, each of the Purchaser and the Agent hereby agrees to take all actions necessary to permit a replacement to succeed to its respective rights and obligations hereunder. SECTION 12.05. Certificates as Evidence of Indebtedness. It is the intent of the Transferor, the Purchaser and the other Owners that, for all federal, state, local and foreign taxes, the Certificates will be evidence of indebtedness of the Transferor. Each of the Transferor, the Purchaser and the other Owners agrees to treat the Certificates for purposes of all federal, state, local and foreign taxes as indebtedness of the Transferor secured by the Receivables and other assets held in the Trust. SECTION 12.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF 44 49 THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW PROVISIONS EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. SECTION 12.07. No Proceedings. (a) The Transferor, each Owner and the Agent each hereby agrees that it will not, prior to the date that is one year and one day after the latest maturing commercial paper note, medium term note or other debt instrument issued by the Purchaser has been issued, acquiesce, petition or otherwise invoke or cause the Purchaser to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Purchaser under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Purchaser or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Purchaser. The Transferor, each Owner and the Agent each hereby further agrees that prior to the date that is one year and one day after the latest maturing commercial paper note, medium term note or other debt instrument issued by the Purchaser has been issued, amounts payable by the Purchaser under or in connection with this Agreement as reimbursement for out-of-pocket expenses or indemnification shall be payable only to the extent that payment thereof will not render the Purchaser insolvent and is made from funds of the Purchaser that are freely distributable by the Purchaser at the Purchaser's discretion. (b) Each Owner and the Agent hereby agrees that it will not, prior to the date that is one year and one day after the termination of the Pooling and Servicing Agreement with respect to the Trust or the Transferor, acquiesce, petition or otherwise invoke or cause the Trust or the Transferor to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a case against the Trust or the Transferor under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trust or the Transferor or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Trust or the Transferor. Each Owner and the Agent each further agrees that prior to the date that is one year and one day after the termination of the Pooling and Servicing Agreement with respect to the Transferor, amounts payable by the Transferor under or in connection with this Agreement as reimbursement for out-of- 45 50 pocket expenses or indemnification shall be payable only to the extent that payment thereof will not render the Transferor insolvent and is made from funds of the Transferor that are freely distributable by the Transferor at the Transferor's discretion. (c) The provisions of this Section 12.07 shall survive the termination of this Agreement. SECTION 12.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 12.09. No Recourse. (a) No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of the Purchaser (whether in its capacity as the Purchaser or as an Owner under this Agreement) as contained in this Agreement or any other agreement, instrument or document entered into by it pursuant hereto or in connection herewith shall be had against any incorporator, affiliate, stockholder, officer, employee or director of the Purchaser, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise (except to the extent that recourse against any such Person arises from the gross negligence or willful misconduct of such Person); it being expressly agreed and understood that the agreements of the Purchaser contained in this Agreement and all of the other agreements, instruments and documents entered into by it pursuant hereto or in connection herewith are, in each case, solely the corporate obligations of the Purchaser, and that no personal liability whatsoever shall attach to or be incurred by any incorporator, stockholder, affiliate, officer, employee or director of the Purchaser, as such, or any of them, under or by reason of any of the obligations, covenants or agreements of the Purchaser contained in this Agreement or in any other such instruments, documents or agreements, or which are implied therefrom, and that any and all personal liability of each incorporator, stockholder, affiliate, officer, employee or director of the Purchaser, or any of them, for breaches by the Purchaser of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, or by statute or constitution, or otherwise, is hereby expressly waived except 46 51 to the extent that such personal liability of any such Person arises from the gross negligence or willful misconduct of such Person. (b) The provisions of this Section 12.09 shall survive the termination of this Agreement. SECTION 12.10. Confidentiality. Each Owner and the Agent hereby agrees to take such measures as shall be reasonably requested by the Transferor to protect and maintain the confidentiality of such information relating to the Receivables as such Transferor may from time to time expressly identify to such Owner or the Agent (as the case may be) as confidential information; provided, however, that none of the Owners or the Agent shall be obligated to take or observe any such measure if to do so would, in the reasonable judgment of such Owner or the Agent, as the case may be, (a) be inconsistent with any Requirement of Law or compliance by such Owner or the Agent with any binding request of any regulatory body having jurisdiction over such Owner or the Agent, as the case may be or (b) materially and adversely affect the ability of such Owner or the Agent to perform its obligations hereunder or in connection herewith or to enforce its rights hereunder or in connection herewith. 47 52 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. NEXTCARD FUNDING CORP. By: /s/ ROBERT LINDERMAN -------------------------------- Name: Robert Linderman Title: General Counsel and Secretary NEXTCARD, INC. By: /s/ ROBERT LINDERMAN -------------------------------- Name: Robert Linderman Title: General Counsel and Secretary HOLLAND LIMITED SECURITIZATION, INC. By: ING Baring (U.S.) Capital Markets LLC, as attorney-in-fact By: /s/ LAUREL CHOATE -------------------------------- Name: Laurel Choate Title: Vice President ING BARING (U.S.) CAPITAL MARKETS LLC, as the Agent By: /s/ LAUREL CHOATE -------------------------------- Name: Laurel Choate Title: Vice President Signature Page -- 1 to Certificate Purchase Agreement Dated as of June 16, 1999 (NextCard Master Trust, Series 1999-1) EX-27.1 9 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF NEXTCARD, INC. FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 0 139,927 0 0 0 0 0 142,532 2,007 293,555 0 126,629 9,854 11,997 0 0 46 145,029 293,555 2,506 1,185 0 3,691 0 2,513 1,178 2,042 0 29,764 (29,672) (29,672) 0 0 (29,672) (2.05) (2.05) 5.56 0 563 0 0 0 35 0 2,007 2,007 0 0
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