As filed with the Securities and Exchange Commission on March 11, 1997
Registration No. 33-99508
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PEOPLE'S BANK
(Originator of the Trust described herein)
(Exact name as specified in registrant's charter)
PEOPLE'S BANK CREDIT CARD MASTER TRUST
(Issuer of the Offered Certificates)
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<S> <C> <C>
United States 6025 06-1213065
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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850 Main Street
Bridgeport, Connecticut 06604
(203) 338-7171
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
WILLIAM T. KOSTURKO, ESQ.
GENERAL COUNSEL
PEOPLE'S BANK
850 Main Street
Bridgeport, Connecticut 06604
(203) 338-7171
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
LAURA A. DEFELICE, ESQ. ANDREW M. FAULKNER, ESQ.
MAYER, BROWN & PLATT SKADDEN, ARPS, SLATE,
1675 Broadway MEAGHER & FLOM LLP
New York, New York 10019 919 Third Avenue
(212) 506-2500 New York, New York 10022
(212) 735-3000
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this registration statement
becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |_|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be aggregate offering aggregate offering registration
being registered registered price per unit (1) price (1) fee (2)
- ---------------- ---------- ------------------ ------------------ ------------
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Floating Rate Class A
Asset Backed Certificates,
Series 1997-1............... $193,000,000 100% $193,000,000 $66,551.72
Floating Rate Class B
Asset Backed Certificates,
Series 1997-1............... $ 10,000,000 100% $ 10,000,000 $ 3,448.28
------------- ------ ----------------- -------------
Total $203,000,000 100% $203,000,000 $70,000.00
- -----------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The full $70,000 registration fee has been previously paid.
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<PAGE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
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CROSS REFERENCE SHEET
Name and Caption in Form S-1 Caption in Prospectus
- --------------------------------------------------- --------------------------------------------------
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1. Forepart of Registration Statement and Outside Front Cover Page of Registration Statement; Outside
Front Cover Page of Prospectus.............. Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page of Prospectus; Outside Back
Prospectus.................................. Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors; The Trust; The
Earnings to Fixed Charges................... Receivables; Receivables Yield Considerations; Certain
Legal Aspects of the Receivables
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. *
6. Dilution.................................... *
7. Selling Security Holders.................... *
8. Plan of Distribution........................ Underwriting
Prospectus Summary; The Trust; The Receivables;
Maturity Considerations; Receivable Yield
Considerations; Description of the Certificates; Certain
Federal Income Tax
9. Description of Securities to be Registered.. Consequences
10. Interests of Named Experts and Counsel...... *
11. Information with Respect to the Registrant.. The Trust; The Credit Card Business of People's Bank;
People's Bank; Description of the Certificates
12. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
* Not applicable.
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EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering by People's Bank Credit Card Master Trust of $[ ] aggregate principal
amount of Floating Rate Class A Asset Backed Certificates, Series 1997-1 and $[
] aggregate principal amount of Floating Rate Class B Asset Backed Certificates,
Series 1997-1. This Registration Statement also contains a Prospectus Supplement
which will be used in connection with the Prospectus for the Offered
Certificates in connection with certain offers and sales outside the United
States.
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==========================RED HERRING (BEGINNING)===============================
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
==========================RED HERRING - END ====================================
SUBJECT TO COMPLETION, DATED [_____________ __], 1997
$---------------
PEOPLE'S BANK CREDIT CARD MASTER TRUST
$_______________ Floating Rate Class A Asset Backed Certificates, Series 1997-1
$_______________ Floating Rate Class B Asset Backed Certificates, Series 1997-1
LOGO
Transferor and Servicer
Each of the Floating Rate Class A Asset Backed Certificates, Series
1997-1 (the "Class A Certificates") and each of the Floating Rate Class B Asset
Backed Certificates, Series 1997-1 (the "Class B Certificates" and, together
with the Class A Certificates, the "Offered Certificates") offered hereby will
evidence undivided interests in certain assets of the People's Bank Credit Card
Master Trust (the "Trust") created pursuant to a pooling and servicing agreement
dated as of June 1, 1993, as amended and restated, between People's Bank, as
transferor and servicer (the "Transferor"), and Bankers Trust Company, as
trustee. In addition, the Collateral Interest (as defined herein), which is not
offered hereby, will be issued in the initial amount of $ (the Collateral
Interest together with the Offered Certificates, the "Certificates"). The
property of the Trust includes, among other things, receivables (the
"Receivables") generated from time to time in a portfolio of VISA(R) and
MasterCard(R) credit card accounts, all monies due or to become due in payment
of the Receivables, Recoveries, Interchange, the benefits of the funds and
securities on deposit in certain bank accounts with respect to the Certificates
and certain interest rate cap agreements, each as defined or described herein.
People's Bank services the Receivables, and People's Structured Finance Corp.
("PSFC"), a wholly-owned subsidiary of People's Bank, owns the undivided
interest in the Trust not represented by the Certificates or the other interests
issued by the Trust. The Trust currently has four other series of certificates
outstanding, and PSFC and People's Bank may offer from time to time other series
of certificates which evidence fractional undivided interests in certain assets
of the Trust, which may have terms significantly different from the
Certificates, by exchanging a portion of PSFC's interest in the Trust.
Interest with respect to the Offered Certificates is scheduled to be
distributed on May 15, 1997 and on the 15th day of each month thereafter (or, if
such 15th day is not a business day, on the next succeeding business day) (each
a "Distribution Date"). Interest will accrue on the Class A Certificates from
the Closing Date through and including April 14, 1997 and from April 15, 1997
through May 14, 1997 at the rate of % per annum and with respect to each
Interest Period (as defined herein) (Continued on following page)
There currently is no secondary market for the Certificates, and there
is no assurance that one will develop.
Potential investors should consider, among other things, the information
set forth in "Risk Factors" commencing on page [ ].
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR RECOURSE OBLIGATIONS OF PEOPLE'S BANK, PSFC OR ANY OF THEIR
AFFILIATES. A CERTIFICATE IS NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION (THE "FDIC"). THE RECEIVABLES ARE NOT INSURED
OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public(1) Discount(2) PSFC(1)(3)
--------- ------------ -----------
Per Class A Certificate..... % % %
Per Class B Certificate..... % % %
Total....................... $ $ $
(1) Plus accrued interest, if any, at the applicable Certificate Rate (as
defined herein) from the Closing Date.
(2) People's Bank and PSFC have agreed to indemnify the Underwriters (as
defined herein) against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
(3) Before deduction of expenses of the offering payable by People's Bank
estimated to be $[ ].
The Offered Certificates are offered by the Underwriters as specified
herein, subject to receipt and acceptance by the Underwriters and subject to
their right to reject in whole or in part. It is expected that the Offered
Certificates will be delivered in book-entry form on or about March [ ], 1997,
through the facilities of The Depository Trust Company, Cedel Bank, societe
anonyme, and the Euroclear System.
Underwriters of the Class A Certificates
Goldman, Sachs & Co.
Underwriters of the Class B Certificates
Goldman, Sachs & Co.
The date of this Prospectus is [ ], 1997.
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(Continued from previous page)
thereafter in the manner and with the exceptions described herein at the rate of
% per annum above the London interbank offered quotations rate for one-month
United States dollar deposits. Interest will accrue on the Class B Certificates
from the Closing Date through and including April 14, 1997 and from April 15,
1997 through May 14, 1997 at the rate of % per annum and with respect to each
Interest Period thereafter in the manner and with the exceptions described
herein at the rate of % per annum above the London interbank offered quotations
rate for one-month United States dollar deposits. See "Description of the
Certificates--Interest Payments". Principal with respect to the Class A
Certificates is scheduled to be distributed on the [ ] Distribution Date (the
"Class A Scheduled Payment Date"), but may be paid earlier or later under
certain limited circumstances as described herein. Principal with respect to the
Class B Certificates is scheduled to be distributed on the [ ] Distribution Date
(the "Class B Scheduled Payment Date"), but may be paid earlier or later under
certain limited circumstances as described herein. See "Maturity
Considerations". Principal payments will not be made to Class B
Certificateholders until the final principal payment has been paid in respect of
the Class A Certificates. See "Description of the Certificates--Principal
Payments".
The fractional undivided interest in the Trust represented by the Class
B Certificates will be subordinated to the Class A Certificates to the extent
described herein. In addition, the Collateral Interest will be subordinated to
the Offered Certificates to the extent described herein.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as defined herein) are issued,
monthly and annual reports containing unaudited information concerning the Trust
and prepared by the Servicer will be sent on behalf of the Trust to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the Offered Certificates, pursuant to the Agreement. See "Description
of the Certificates--Book-Entry Registration", "--Reports to Certificateholders"
and "--Evidence as to Compliance". Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
The Transferor does not intend to send any of its financial reports to
Certificateholders or to the owners of beneficial interests in the Certificates
("Offered Certificate Owners"). The Servicer will file with the Securities and
Exchange Commission (the "Commission") such periodic reports with respect to the
Trust as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission on behalf of the Trust with respect to the Certificates
offered pursuant to this Prospectus. For further information, reference is made
to the Registration Statement and amendments thereof and exhibits thereto, which
are available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the
Registration Statement and amendments thereof and exhibits thereto may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site at "http://www.sec.gov" that contains information regarding
registrants that file electronically with the Commission.
Application will be made to list the Class A Certificates on the
Luxembourg Stock Exchange.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
OFFERED CERTIFICATES OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING,
THE PURCHASE OF OFFERED CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used herein are defined elsewhere in this Prospectus. A listing of the pages on
which some of such terms are defined is found in the "Index of Key Terms".
Unless the context requires otherwise, certain capitalized terms, when used
herein, relate only to the Certificates.
Title of Securities.......... $ Floating Rate Class A Asset Backed
Certificates, Series 1997-1 (the "Class
A Certificates") and $ Floating Rate
Class B Asset Backed Certificates,
Series 1997-1 (the "Class B
Certificates" and, together with the
Class A Certificates, the "Offered
Certificates" and, together with the
Collateral Interest described herein,
the "Certificates").
The Trust...................... The Certificates represent fractional
undivided interests in certain assets of
People's Bank Credit Card Master Trust
(the "Trust"). The Trust's fiscal year
ends December 31. As used herein, the
term "Series 1997-1 Supplement" refers
to the supplement to the Agreement
relating to the Certificates; the term
"Agreement" refers to the Amended and
Restated Pooling and Servicing Agreement
dated as of [March __], 1997, amending
and restating in its entirety the
Pooling and Servicing Agreement dated as
of June 1, 1993, and, unless the context
requires otherwise, refers to the
Agreement as supplemented by the Series
1997-1 Supplement; the term "Offered
Certificateholders" refers to holders of
the Offered Certificates; the term
"Certificateholders" refers to the
Offered Certificateholders and the
Collateral Interest Holder collectively;
the term "Class A Certificateholders"
refers to holders of the Class A
Certificates and the term "Class B
Certificateholders" refers to holders of
the Class B Certificates; the term
"Series" refers to any series of
certificates issued by the Trust,
including the Certificates; and the term
"Series 1997-1" refers to the Series
represented by the Certificates.
The Trust currently has four other
Series outstanding. See "Annex I: Prior
Series Issued and Outstanding" for a
summary of these outstanding Series.
Trustee........................ Bankers Trust Company, a New York
banking corporation (the "Trustee"). The
Corporate Trust Office is located at 4
Albany Street, New York, New York 10006.
Transferor..................... People's Bank, a Connecticut stock
savings bank and a majority-owned
subsidiary of People's Mutual Holdings,
is the Transferor of the Receivables and
the originator of the Trust. The
principal executive offices of People's
Bank are located at 850 Main Street,
Bridgeport Center, Bridgeport,
Connecticut 06604, telephone number
(203) 338- 7171.
3
<PAGE>
Trust Assets................... The property of the Trust includes
receivables (the "Receivables") arising
under certain VISA(R)* and
MasterCard(R)* credit card accounts, all
Receivables arising in Automatic
Additional Accounts and Additional
Accounts designated from time to time,
all monies due or to become due in
payment of the Receivables, all proceeds
of the Receivables, proceeds of
insurance policies relating to the
Receivables, and the right to receive
Interchange, Recoveries, all monies on
deposit in certain bank accounts of the
Trust, all monies and securities on
deposit in certain bank accounts
established and maintained for the
benefit of certificateholders of any
Series, an interest rate cap agreement
for the exclusive benefit of the Class A
Certificateholders (the "Class A
Interest Rate Cap") and an interest rate
cap agreement for the exclusive benefit
of the Class B Certificateholders (the
"Class B Interest Rate Cap" and,
together with the Class A Interest Rate
Cap, the "Interest Rate Caps"), each
provided by [ ] (the "Interest Rate Cap
Provider"), and any other Enhancement
issued with respect to any Series. The
term "Trust Portfolio" means the pool of
Eligible Receivables representing assets
of the Trust as of a specified date. The
Trust does not and will not include the
Receivables of any Accounts designated
from time to time as Removed Accounts,
the Receivables of which have been
removed from the Trust.
The Offered Certificateholders will not
be entitled to the benefits of any
Enhancement issued with respect to any
Series other than Series 1997-1, and the
holders of the certificates of other
Series will not be entitled to the
benefits of the Interest Rate Caps or
the Collateral Interest. The term
"Enhancement" shall mean, with respect
to any other Series, any letter of
credit, cash collateral account,
collateral interest, surety bond,
guaranteed rate agreement, maturity
guaranty facility, tax protection
agreement, interest rate cap or swap or
other contract or agreement principally
for the benefit of certificateholders of
such Series. The term "Enhancement"
shall mean, with respect to the Offered
Certificates, the Interest Rate Caps,
the subordination of the Collateral
Interest and, in the case of the Class A
Certificates, the subordination of the
Class B Investor Interest.
- --------------------
* VISA(R) and MasterCard(R) are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
<PAGE>
Securities Offered............. The Class A Certificates and the Class B
Certificates will be issued on March [
], 1997 (the "Closing Date") in
book-entry form only, in the initial
principal amounts of $ and $ ,
respectively, and will each be
represented by one or more Offered
Certificates registered in the name of
Cede. An Offered Certificate Owner will
not be entitled to receive a definitive
certificate representing such person's
interest, except in the event that
Definitive Certificates are issued under
the limited circumstances described
herein. In such event, interests in the
Offered Certificates will be available
in minimum denominations of $1,000 and
integral multiples thereof. All
references herein to Offered
Certificateholders, Class A
Certificateholders or Class B
Certificateholders shall refer to
Offered Certificate Owners, except as
otherwise specified herein. See
"Description of the
Certificates--Definitive Certificates".
In addition to the Class A Certificates
and the Class B Certificates, the
Collateral Interest will be issued on
the Closing Date in the initial amount
of $ (which amount represents [ ]% of
the amount of the Initial Investor
Interest) as Enhancement for the Offered
Certificates. The provider of such
Enhancement is sometimes referred to
herein as the "Collateral Interest
Holder".
Each of the Certificates represents a
fractional undivided interest in certain
assets of the Trust. The Trust assets
will be allocated among the
Certificateholders, the holders of
certificates of any other Series which
is outstanding at the time of such
allocation and the holder of the
certificate (the "Exchangeable
Transferor Certificate") that represents
the Transferor Interest (as defined
below), which is currently held by
People's Structured Finance Corp.
("PSFC"), a wholly-owned special purpose
Connecticut subsidiary of People's Bank,
pursuant to an Assignment and Assumption
Agreement, dated as of December 15,
1995, by and between the Transferor and
PSFC. PSFC, in its capacity as holder of
the Exchangeable Transferor Certificate,
or any other permitted assignee of the
Exchangeable Transferor Certificate that
is then currently the registered holder
of the Exchangeable Transferor
Certificate, is sometimes referred to
herein as the "Holder of the
Exchangeable Transferor Certificate".
The Certificates represent interests in
the Trust only and do not represent
interests in or recourse obligations of
the Transferor, PSFC or any of their
affiliates. The Certificates are not
deposits and are not insured by the
Federal Deposit Insurance Corporation
(the "FDIC"). Neither the Receivables
nor the underlying accounts are insured
or guaranteed by the FDIC or any other
governmental agency.
Investor Interest; Transferor
Interest....................... On the Closing Date, the amount of the
Class A Certificateholders' interest in
Principal Receivables will equal $ (the
"Class A Initial Investor Interest"),
the amount of the Class B
Certificateholders' interest in
Principal Receivables will equal $ (the
"Class B Initial Investor Interest"),
and the amount of the Collateral
Interest in Principal Receivables will
equal $ (the "Initial Collateral
Interest" and, together with the Class A
Initial Investor Interest and the Class
B Initial Investor Interest, the
"Initial Investor Interest"). The Class
A Initial Investor Interest and the
Class B Initial Investor Interest may be
reduced to reflect the tender and
cancellation of Offered Certificates
pursuant to an Investor Exchange. The
Class A Certificateholders' interest in
Principal Receivables on any date after
the Closing Date (the "Class A Investor
Interest") will equal (i) the Class A
Initial Investor Interest, less (ii) an
amount equal to the sum of all payments
in respect of principal made on the
Class A Certificates and all Class A
Investor Charge-Offs, plus (iii) any
reimbursements of such Class A Investor
Charge-Offs. The Class A
Certificateholder interest in Finance
Charge Collections and Defaulted
Receivables on any debt during the
Controlled Accumulation Period (the
"Class A Adjusted Investor Interest")
will equal the Class A Investor Interest
less the Principal Funding Account
Balance on such date. The Class B
Certificateholders' interest in
Principal Receivables on any date after
the Closing Date (the "Class B Investor
Interest") will equal the Class B
Initial Investor Interest, less all
payments in respect of principal made on
the Class B Certificates, any Class B
Investor Charge-Offs and any other
reductions of the Class B Investor
Interest as described herein, plus any
reimbursements of such Class B Investor
Charge-Offs and such other reductions of
the Class B Investor Interest as
described herein. The Collateral
Interest Holder's interest in Principal
Receivables on any date after the
Closing Date (the "Collateral Interest")
will equal the Initial Collateral
Interest, less all payments in respect
of principal made on the Collateral
Interest, any Collateral Interest
Charge-Offs and any other reductions of
the Collateral Interest as described
herein, plus any reimbursements of such
Collateral Interest Charge-Offs and such
other reductions of the Collateral
Interest as described herein. The
aggregate of the Class A Investor
Interest, the Class B Investor Interest
and the Collateral Interest at any time
is the "Investor Interest". The
aggregate of the Class A Adjusted
Investor Interest, the Class B Investor
Interest and the Collateral Interest at
any time is the "Adjusted Investor
Interest".
The Holder of the Exchangeable
Transferor Certificate holds in the
Trust the remaining undivided interest
in the Principal Receivables and amounts
on deposit in the Excess Funding Account
not represented by the Certificates or
any other undivided interests in the
Trust that have been issued and are
outstanding at the time of such
determination (the "Transferor
Interest"). As new Receivables are added
to the Trust and as payments are made on
the Transferor Interest, the principal
amount of the Transferor Interest will
fluctuate. The Holder of the
Exchangeable Transferor Certificate may
tender the Exchangeable Transferor
Certificate or, if provided in the
relevant Supplement, the Transferor may
tender certificates representing all or
a portion of any Series of certificates
and the Holder of the Exchangeable
Transferor Certificate may tender the
Exchangeable Transferor Certificate, to
the Trustee and, upon satisfying certain
conditions, cause the Trustee to issue
one or more new Series, as described in
"Description of the
Certificates--Exchanges", which Exchange
may have the effect of decreasing the
Transferor Interest. As of the date
hereof, five other Series have been
issued by the Trust, one of which has
been paid in full. See "Annex I: Prior
Series Issued and Outstanding".
Allocation Percentages......... The Certificates will include the right
to receive (but only to the extent
required to make payments under the
Agreement) a percentage (the "Investor
Percentage") of the Finance Charge
Collections and Principal Collections
received during each calendar month (a
"Monthly Period"). Finance Charge
Collections and Receivables in Defaulted
Accounts, at all times, and Principal
Collections during the Revolving Period,
will be allocated to the
Certificateholders based on the Floating
Investor Percentage. The Floating
Investor Percentage with respect to any
Monthly Period will be adjusted to
reflect any addition of Additional
Accounts or removal of Removed Accounts
during such Monthly Period, as described
under "Description of the
Certificates--Allocation Percentages."
Such amounts so allocated will be
further allocated among the Class A
Certificateholders, the Class B
Certificateholders and the Collateral
Interest Holder based on the Class A
Floating Allocation, the Class B
Floating Allocation and the Collateral
Floating Allocation, respectively,
applicable during the related Monthly
Period.
Principal Collections during the
Controlled Accumulation Period and the
Rapid Amortization Period will be
allocated to the Certificateholders
based on the Fixed Investor Percentage.
The Fixed Investor Percentage with
respect to any Monthly Period will be
adjusted to reflect any addition of
Additional Accounts or removal of
Removed Accounts during such Monthly
Period, as described under "Description
of the Certificates--Allocation
Percentages." Such amounts so allocated
will be further allocated between the
Class A Certificateholders, the Class B
Certificateholders and the Collateral
Interest Holder based on the Class A
Fixed Allocation, the Class B Fixed
Allocation and the Collateral Fixed
Allocation, respectively. See
"Description of the
Certificates--Allocation Percentages."
Interest....................... Interest is required to be distributed
on May 15, 1997 and on the 15th day of
each month thereafter, or, if such 15th
day is not a business day, on the next
succeeding business day (each, a
"Distribution Date"), in an amount equal
to, in the case of the Class A
Certificates, the sum of (v) the sum of
(I), the product of (a) the London
interbank offered quotations rate for
one-month United States dollar deposits
("LIBOR"), determined as described
herein, plus % (the "Class A Certificate
Rate") (or % for the Initial Interest
Period), (b) the lesser of the Class A
Adjusted Investor Interest as of the
preceding Distribution Date (or, in the
case of the first Distribution Date, the
Class A Initial Investor Interest) after
giving effect to all payments, deposits
and withdrawals on such Distribution
Date, and (c) the actual number of days
in the related Interest Period divided
by 360, plus (w) the Class A Covered
Amounts for such Interest Period, plus
(x) the product of (a) the Class A
Excess Principal, (b) the lesser of the
Class A Certificate Rate and %, and (c)
the actual number of days in the related
Interest Period divided by 360 (clauses
(v), (w) and (x) collectively, the
"Class A Monthly Interest"), plus (y) to
the extent permitted by applicable law,
any interest accrued on the Class A
Certificates (including interest on any
overdue Class A Monthly Interest) during
any prior accrual period which has not
been distributed to the Class A
Certificateholders, plus, to the extent
that there is available Excess Spread,
(z) an amount equal to the product of
(a) the amount by which the Class A
Certificate Rate exceeds %, (b) the
Class A Excess Principal and (c) the
actual number of days in the related
Interest Period divided by 360 (the
"Class A Excess Interest"). In the case
of the Class B Certificates, interest
will be distributed in an amount equal
to the sum of (w) the product of (a)
LIBOR, determined as described herein,
plus % (the "Class B Certificate Rate";
the Class A Certificate Rate and the
Class B Certificate Rate are each
sometimes referred to as an "Offered
Certificate Rate" and collectively, the
"Offered Certificate Rates") (or % for
the Initial Interest Period), (b) the
lesser of the Class B Investor Interest
as of the preceding Distribution Date
(or, in the case of the first
Distribution Date, the Class B Initial
Investor Interest) after giving effect
to all payments, deposits and
withdrawals on such Distribution Date
and the Expected Class B Principal as of
the preceding Distribution Date, and (c)
the actual number of days in the related
Interest Period divided by 360, plus (x)
the product of (a) the Class B Excess
Principal, (b) the lesser of the Class B
Certificate Rate and %, and (c) the
actual number of days in the related
Interest Period divided by 360
(collectively, the "Class B Monthly
Interest"), plus (y) to the extent
permitted by applicable law, any
interest accrued on the Class B
Certificates (including interest on any
overdue Class B Monthly Interest) during
any prior accrual period which has not
been distributed to the Class B
Certificateholders, plus, to the extent
that there is available Excess Spread,
(z) an amount equal to the product of
(a) the amount by which the Class B
Certificate Rate exceeds %, (b) the
Class B Excess Principal and (c) the
actual number of days in the related
Interest Period divided by 360 (the
"Class B Excess Interest"). For any
Interest Period in which the Class A
Certificate Rate or the Class B
Certificate Rate, as the case may be,
exceeds the Class A Cap Rate or the
Class B Cap Rate, respectively, the
portion of the Class A Monthly Interest
or the Class B Monthly Interest
attributable to the amount by which the
Class A Certificate Rate or the Class B
Certificate Rate, as the case may be,
exceeds the Class A Cap Rate or the
Class B Cap Rate, respectively, will be
funded from payments made pursuant to
the Class A Interest Rate Cap or the
Class B Interest Rate Cap, respectively,
and from Excess Spread. Interest
distributable on May 15, 1997 will
accrue from and including the Closing
Date to and including May 14, 1997 (the
"Initial Interest Period").
Revolving Period............... No principal will be payable to
Certificateholders until the [ ]
Distribution Date or, upon the
occurrence of a Pay Out Event as
described herein, the first Distribution
Date with respect to the Rapid
Amortization Period. For each Monthly
Period during the period from and
including the Closing Date, up to and
including the day prior to the day on
which the Controlled Accumulation Period
or the Rapid Amortization Period
commences (the "Revolving Period"),
Available Investor Principal Collections
otherwise allocable to the
Certificateholders will, unless a
reduction in the Required Collateral
Interest has occurred and subject to
certain other limitations, be applied as
Shared Principal Collections, as
described below, and thereafter (to the
extent that the Transferor Interest
exceeds the Minimum Transferor Interest)
be paid to the Holder of the
Exchangeable Transferor Certificate to
maintain the Investor Interest at the
Initial Investor Interest. See
"Description of the Certificates-Pay Out
Events" for a discussion of the events
which might lead to the early
termination of the Revolving Period.
4
<PAGE>
Principal Payments; Controlled
Accumulation Period............ Unless a Pay Out Event has occurred or
is deemed to have occurred or the
Controlled Accumulation Period is
postponed as a result of the conditions
set forth under "Description of the
Certificates-- Postponement of
Controlled Accumulation Period," the
controlled accumulation period for the
Certificates (the "Controlled
Accumulation Period") will commence at
the close of business on [______] (the
"Controlled Accumulation Date"), and
will end on the earliest of (a) the
commencement of the Rapid Amortization
Period, (b) the payment of the Investor
Interest in full and (c) the termination
of the Trust pursuant to the Agreement.
On the Business Day immediately
preceding each Distribution Date (each
such date, a "Transfer Date"), beginning
with the Transfer Date following the
Monthly Period in which the Controlled
Accumulation Period commences, an amount
equal to the least of (a) the Available
Investor Principal Collections with
respect to the related Monthly Period,
(b) the sum of the Controlled
Accumulation Amount for the related
Monthly Period and the Accumulation
Shortfall, if any (such sum, the
"Controlled Deposit Amount") and (c) the
Class A Adjusted Investor Interest on
such Transfer Date (prior to any
deposits on such date) will be deposited
in a trust account established by the
Trustee (the "Principal Funding
Account") until the amount on deposit in
the Principal Funding Account (the
"Principal Funding Account Balance") is
equal to the Class A Investor Interest.
Amounts deposited in the Principal
Funding Account will be deposited in the
Distribution Account for distribution to
the Class A Certificateholders on the
Class A Scheduled Payment Date.
On the Transfer Date during the
Controlled Accumulation Period
immediately following the Distribution
Date on which the Class A Investor
Interest has been paid in full, an
amount equal to the lesser of (a) the
Available Investor Principal Collections
for the related Monthly Period and (b)
the Class B Investor Interest will be
deposited into the Distribution Account
for distribution to the Class B
Certificateholders on the Class B
Scheduled Payment Date. If, for any
Monthly Period, the Available Investor
Principal Collections for such Monthly
Period exceed the applicable Controlled
Deposit Amount, any such excess will be
first paid to the Collateral Interest
Holder to the extent that the Collateral
Interest exceeds the Required Collateral
Interest (such excess, the "Collateral
Interest Surplus") and then treated as
Shared Principal Collections and
allocated to the holders of other Series
of certificates issued and outstanding
or, subject to certain limitations
described herein (to the extent that the
Transferor Interest exceeds the Minimum
Transferor Interest), paid to the holder
of the Exchangeable Transferor
Certificate. If, for any Monthly Period,
the Available Investor Principal
Collections for such Monthly Period are
less than the applicable Controlled
Deposit Amount, the amount of such
deficiency will be the applicable
"Accumulation Shortfall" for the
succeeding Monthly Period. See
"Description of the Certificates --
Application of Collections."
Unless a Pay Out Event has occurred or
is deemed to have occurred, prior to the
payment of the Class A Investor Interest
in full, all funds on deposit in the
Principal Funding Account will be
invested at the direction of the
Servicer by the Trustee in certain
Permitted Investments. Investment
earnings (net of investment losses and
expenses) on funds on deposit in the
Principal Funding Account (the
"Principal Funding Investment Proceeds")
during the Controlled Accumulation
Period will be used to pay interest on
the Class A Certificates up to an amount
(the "Class A Covered Amount") equal to,
for each Transfer Date, the product of
(a) a fraction, the numerator of which
is the actual number of days in the
related Interest Period and the
denominator of which is 360, (b) the
Class A Certificate Rate in effect with
respect to the related Interest Period
and (c) the Principal Funding Account
Balance as of the preceding Distribution
Date after giving effect to all
payments, deposits and withdrawals on
such Distribution Date. If, for any
Transfer Date, the Principal Funding
Investment Proceeds are less than the
Class A Covered Amount, the amount of
such deficiency (the "Class A Principal
Funding Investment Shortfall") will be
paid, to the extent available, from the
Reserve Account and, if necessary, from
Excess Spread and Reallocated Principal
Collections.
Funds on deposit in the Principal
Funding Account will be available to pay
the Class A Certificateholders in
respect of the Class A Investor Interest
on the Class A Scheduled Payment Date.
If the aggregate principal amount of
deposits made to the Principal Funding
Account is insufficient to pay the Class
A Investor Interest in full on the Class
A Scheduled Payment Date, the Rapid
Amortization Period will commence as
described below. Although it is
anticipated that during the Controlled
Accumulation Period prior to the payment
of the Class A Investor Interest in
full, funds will be deposited in the
Principal Funding Account in an amount
equal to the applicable Controlled
Deposit Amount on each Transfer Date and
that scheduled principal will be
available for distribution to the Class
A Certificateholders on the Class A
Scheduled Payment Date, no assurance can
be given in that regard. See "Maturity
Considerations".
On the Class B Scheduled Payment Date,
provided that the Class A Investor
Interest is paid in full on the Class A
Scheduled Payment Date and the Rapid
Amortization Period has not commenced,
Available Investor Principal Collections
will be used to pay the Class B
Certificateholders in respect of the
Class B Investor Interest as described
herein. If Available Investor Principal
Collections are insufficient to pay the
Class B Investor Interest in full on the
Class B Scheduled Payment Date, the
Rapid Amortization Period will commence
as described below. Although it is
anticipated that scheduled principal
will be available for distribution to
the Class B Certificateholders on the
Class B Scheduled Payment Date, no
assurance can be given in that regard.
See "Maturity Considerations".
If a Pay Out Event occurs during the
Controlled Accumulation Period, the
Rapid Amortization Period will commence
and any amounts on deposit in the
Principal Funding Account will be paid
to the Class A Certificateholders on the
Distribution Date following the Monthly
Period in which the Rapid Amortization
Period commences. See "Maturity
Considerations", "Description of the
Certificates Application of Collections"
and "--Subordination of the Class B
Certificates".
Principal Payments; Rapid
Amortization Period............ During the period beginning on the day
on which a Pay Out Event occurs or is
deemed to occur and continuing to and
including the earlier of (a) the date on
which the Investor Interest has been
paid in full and (b) the Scheduled
Series 1997-1 Termination Date (the
"Rapid Amortization Period"), the
Principal Allocation along with Shared
Principal Collections from other Series,
if any, will be distributed monthly to
the Class A Certificateholders until the
Class A Investor Interest is paid in
full and, following the final principal
payment to the Class A
Certificateholders, to the Class B
Certificateholders until the Class B
Investor Interest is paid in full and,
following the final principal payment to
the Class B Certificateholders, to the
Collateral Interest Holder until the
Collateral Interest is paid in full, on
each Distribution Date beginning with
the Distribution Date in the month
following the Monthly Period in which
the Rapid Amortization Period commences.
See "Description of the Certificates-Pay
Out Events" for a discussion of the
events which might lead to the
commencement of a Rapid Amortization
Period.
Final Payment of Principal and
Interest....................... The final distributions of interest and
the scheduled payment of principal on
the Class A Certificates and the Class B
Certificates, respectively, are
scheduled to be made on the [ ]
Distribution Date (the "Class A
Scheduled Payment Date") and the [ ]
Distribution Date (the "Class B
Scheduled Payment Date"; "Scheduled
Payment Date" shall refer to the Class B
Scheduled Payment Date and/or the Class
A Scheduled Payment Date, as applicable)
and will be made no later than the [ ]
Distribution Date (the "Scheduled Series
1997-1 Termination Date"). After the
Scheduled Series 1997-1 Termination
Date, neither the Trust nor the
Transferor will have any further
obligation to pay principal or interest
on the Certificates.
Exchanges...................... The Agreement authorizes the Trustee to
issue two types of certificates: (i) one
or more Series of certificates
transferable and having the
characteristics described below and (ii)
the Exchangeable Transferor Certificate,
a certificate evidencing the Transferor
Interest, currently held by PSFC and
transferable only as provided in the
Agreement. The Agreement also provides
that, pursuant to any one or more
supplements to the Agreement (each, a
"Supplement"), the Holder of the
Exchangeable Transferor Certificate may
tender the Exchangeable Transferor
Certificate (a "Transferor Exchange")
or, if provided in the relevant
Supplement, the Transferor may transfer
certificates representing any Series of
certificates and the Holder of the
Exchangeable Transferor Certificate may
transfer the Exchangeable Transferor
Certificate (an "Investor Exchange"), to
the Trustee in exchange for one or more
new Series and a reissued Exchangeable
Transferor Certificate (any tender
pursuant to a Transferor Exchange or an
Investor Exchange being referred to as
an "Exchange"). The Series 1997-1
Supplement permits an Investor Exchange
with respect to the Offered
Certificates. See "Description of the
Certificates--Exchanges". At all times,
however, the interest in the Principal
Receivables in the Trust represented by
the Transferor Interest must equal or
exceed the Minimum Transferor Interest
(as defined below). Under the Agreement,
the Supplement executed by the
Transferor and the Trust in conjunction
with an Exchange will define, with
respect to any Series, the Principal
Terms of the Series. The Transferor and
the Holder of the Exchangeable
Transferor Certificate may offer any
Series to the public or other investors
under a prospectus or other disclosure
document (a "Disclosure Document") in
transactions either registered under the
Securities Act or exempt from
registration thereunder, directly or
through the Underwriters or one or more
other underwriters or placement agents,
in fixed-price offerings or in
negotiated transactions or otherwise.
The Transferor and the Holder of the
Exchangeable Transferor Certificate may
offer, from time to time, additional
Series issued by the Trust. See
"Description of the Certificates--
Exchanges".
Under the Agreement and pursuant to a
Supplement, an Exchange may occur only
upon delivery to the Trustee of the
following: (i) a Supplement specifying
the Principal Terms of such Series, (ii)
an opinion of counsel to the effect that
the certificates of such Series under
existing law will be characterized as
indebtedness for Federal income tax
purposes and that the issuance of such
Series will not materially adversely
affect the Federal income tax
characterization of any outstanding
Series, (iii) if required by the related
Supplement, the form of Enhancement,
(iv) if Enhancement is required by the
Supplement, an appropriate Enhancement
instrument or agreement, (v) written
confirmation from the Rating Agency that
the Exchange will not result in such
Rating Agency reducing or withdrawing
its rating on any then outstanding
Series rated by it, and (vi) the
existing Exchangeable Transferor
Certificate and, if applicable, the
certificates representing the Series to
be exchanged.
The Holder of the Exchangeable
Transferor Certificate also has the
right, upon Transferor consent, to
transfer the Exchangeable Transferor
Certificate, and the Transferor also has
the right to sell, transfer or pledge
the Accounts, provided that certain
requirements contained in the Agreement
are satisfied and that the Rating Agency
has confirmed that such sale, transfer
or pledge will not result in the
reduction or withdrawal of its then
existing rating of the Certificates. See
"Description of the Certificates--Sale
of Accounts" and "--Certain Matters
Regarding the Transferor and the
Servicer".
Receivables.................... The Receivables arise in Accounts that
have been selected from the VISA and
MasterCard credit card accounts owned by
the Transferor based on criteria
provided in the Agreement as applied
with respect to each Account upon its
inclusion in the portfolio and on the
date of the inclusion of the related
Receivables in the Trust. The
Receivables consist of amounts charged
by cardholder for goods and services and
cash advances (the "Principal
Receivables") plus the related periodic
finance charges billed to the Accounts,
amounts billed to the Accounts in
respect of annual membership fees, cash
advance fees, late fees, returned check
fees, overlimit fees, the premiums of
any insurance covering a cardholder's
account balances, Recoveries,
Interchange and investment earnings on
the Excess Funding Account
(collectively, the "Finance Charge
Receivables"). Proceeds from the sale of
all or a portion of an Interest Rate Cap
will also be treated under the
Supplement as Finance Charge
Collections, allocable to the related
class of Offered Certificates. In
addition, if the Transferor exercises
the Discount Option in accordance with
the terms and conditions of the
Agreement, an amount equal to the
product of the Discount Percentage and
the amount of Receivables arising in
designated Accounts on and after the
date such option is exercised that
otherwise would be Principal Receivables
will be treated as Finance Charge
Receivables. See "Description of the
Certificates--Discount Option".
"Accounts" means VISA and MasterCard
credit card accounts identified as part
of the accounts underlying the
Receivables in the Trust Portfolio as of
[ ], (the "Series Cut-Off Date"),
together with Automatic Additional
Accounts arising on or prior to the
Series Cut-Off Date and Additional
Accounts conveyed on or prior to [ ],
but does not include any Removed
Accounts. "Recoveries" means amounts
received with respect to charged-off
credit card receivables of the Bank
Portfolio allocable to the Trust. The
aggregate amount of Receivables in the
Accounts as of the Series Cut-Off Date
was approximately $ . The Finance Charge
Receivables will not affect the amount
of the Investor Interest represented by
the Certificates or the amount of the
Transferor Interest, which are
determined on the basis of the amount of
the Principal Receivables in the Trust.
During the term of the Trust, all new
Receivables arising in the Accounts will
be automatically transferred (without
further action by the Transferor) to the
Trust by the Transferor. The total
amount of Receivables in the Trust will
fluctuate from day to day, because the
amount of new Receivables arising in the
Accounts and the amount of payments
collected on existing Receivables
usually differ each day. Because the
Transferor Interest represents the
interest in the Principal Receivables in
the Trust not represented by the
Certificates, the certificates of other
Series or any other undivided interests
in the Trust, the amount of the
Transferor Interest will fluctuate from
day to day as Receivables are collected
and new Receivables are transferred to
the Trust. See "The Receivables".
Addition and Removal
of Accounts.................... Pursuant to the Agreement, the
Transferor has (subject to certain
limitations and conditions) designated
and may in the future designate
additional eligible consumer revolving
credit accounts or categories of
eligible consumer revolving credit
accounts satisfying certain criteria
specified in the Agreement (the
"Automatic Additional Accounts") and has
conveyed or will convey (as applicable)
to the Trust all of the Receivables in
such Automatic Additional Accounts
whether such Receivables are then
existing or thereafter created. See
"Description of the
Certificates--Addition of Accounts".
Additionally, pursuant to the Agreement,
the Transferor has the right (subject to
certain limitations and conditions) and,
in some circumstances, is obligated, to
designate additional eligible consumer
revolving credit accounts to be included
as Accounts (the "Additional Accounts")
and to convey to the Trust all of the
Receivables in the Additional Accounts
whether such Receivables are then
existing or thereafter created. The
Transferor previously designated
Additional Accounts to be included as
Accounts on July 9, 1993, October 4,
1994, July 14, 1995, May 1, 1996, and
October 1, 1996.
Automatic Additional Accounts and
Additional Accounts will consist of
certain of the Transferor's VISA credit
card accounts and MasterCard credit card
accounts constituting, respectively,
Eligible Automatic Additional Accounts
and Eligible Additional Accounts and
satisfying certain other criteria, and
arising in Accounts designated by the
Transferor from time to time. Automatic
Additional Accounts and Additional
Accounts may, subject to certain
conditions, also include certain other
consumer revolving credit accounts. See
"Description of the
Certificates--Addition of Accounts".
Further, pursuant to the Agreement, the
Transferor has the right (subject to
certain limitations and conditions) to
remove the Receivables related to
certain Accounts designated by the
Transferor from the Trust (the "Removed
Accounts") and accept the conveyance of
all the Receivables in the Removed
Accounts, whether such Receivables are
then existing or thereafter created.
Denomination................... The Offered Certificates will be offered
for purchase in minimum denominations of
$1,000 and integral multiples thereof.
Registration of Offered
Certificates................... The Offered Certificates will initially
be represented by certificates
registered in the name of Cede, as the
nominee of DTC. No Offered Certificate
Owner will be entitled to receive a
definitive certificate representing such
person's interest, except in the event
that Definitive Certificates (as defined
herein) are issued under the limited
circumstances described herein. See
"Description of the
Certificates--Definitive Certificates".
Clearance and Settlement....... Offered Certificate Owners may elect to
hold their certificates through DTC (in
the United States) or Cedel or Euroclear
(in Europe), each of which in turn hold
through DTC. Transfers within DTC or
Cedel or Euroclear, as the case may be,
will be made in accordance with the
usual rules and operating procedures of
the relevant system. Cross- market
transfers between persons holding
directly or indirectly through DTC in
the United States, on the one hand, and
counterparties holding directly or
indirectly through Cedel or Euroclear,
on the other, will be effected in DTC
through the relevant Depositaries of
Cedel or Euroclear. See "Description of
the Certificates--Book-Entry
Registration" and Annex II.
Servicer....................... The Servicer is People's Bank, a
Connecticut chartered stock savings
bank. In certain limited circumstances,
People's Bank may resign or be removed
as Servicer, in which event the Trustee
or a third party servicer may be
appointed as successor servicer
(People's Bank, and any such successor
servicer acting in such capacity, are
referred to herein as the "Servicer").
The Servicer is permitted to delegate
certain of its duties as servicer under
the Agreement to any of its affiliates,
but any such delegation will not relieve
the Servicer of its obligations
thereunder.
Collections.................... The Servicer will deposit all
Collections in an account established
for such purpose (the "Collection
Account"). All amounts deposited in the
Collection Account will be allocated in
the manner provided in the Agreement, as
supplemented by the Series 1997-1
Supplement, and the Supplements relating
to any past or future Series, by the
Servicer between Principal Collections
and Finance Charge Collections. If the
Discount Option is exercised by the
Transferor, certain Collections that
would otherwise be characterized as
Principal Collections will instead be
treated as Finance Charge Collections.
See "Description of the
Certificates--Discount Option". In
addition, pursuant to the Series 1997-1
Supplement, proceeds from any sale of
the Class A Interest Rate Cap or the
Class B Interest Rate Cap will be
allocated as Finance Charge Collections
to the related class of Offered
Certificates. All such amounts will then
be allocated in accordance with the
respective interests of the
Certificateholders, the
certificateholders of any other Series
and the Holder of the Exchangeable
Transferor Certificate in the Principal
Receivables and in the Finance Charge
Receivables in the Trust. See
"Description of the
Certificates--Allocation Percentages".
Subordination of the Class B
Certificates and the
Collateral Interest............ The Class B Investor Interest and the
Collateral Interest will be subordinated
as described herein to the extent
necessary to fund certain payments with
respect to the Class A Certificates and
the Class A Monthly Servicing Fee as
described herein. In addition, the
Collateral Interest will be subordinated
as described herein to the extent
necessary to fund certain payments with
respect to the Class B Certificates and
the Class B Monthly Servicing Fee. If
the Collateral Interest is reduced to
zero, the Class B Certificateholders
will bear directly the credit and other
risks associated with their interest in
the Trust. If the Class B Investor
Interest and the Collateral Interest are
reduced to zero, the Class A
Certificateholders will bear directly
the credit and other risks associated
with their interest in the Trust. To the
extent the Class B Investor Interest is
thereby reduced, the percentage of
Finance Charge Collections allocated to
the Class B Certificateholders in
subsequent Monthly Periods will be
reduced. Such reductions of the Class B
Investor Interest will thereafter be
reimbursed and the Class B Investor
Interest increased on each Distribution
Date by the amount, if any, of Excess
Spread and any Shared Finance Charge
Collections from other Series available
for that purpose for such Distribution
Date. Moreover, to the extent the amount
of such reduction in the Class B
Investor Interest is not reimbursed, the
amount of principal distributable to the
Class B Certificateholders will be
reduced. See "Description of
Certificates--Subordination of the Class
B Certificates" and "--Application of
Collections".
Application of Funds........... If Finance Charge Collections allocable
to the Class A Investor Interest for any
Monthly Period plus, during the
Controlled Accumulation Period,
Principal Funding Investment Proceeds
and amounts, if any, withdrawn from the
Reserve Account with respect to such
Monthly Period, are insufficient (such
insufficiency being the "Class A
Required Amount") to pay (i) interest
accrued on the Class A Certificates with
respect to the related Distribution Date
in an amount equal to the sum of (a) the
Class A Monthly Cap Rate Interest due on
the related Distribution Date and any
overdue Class A Monthly Cap Rate
Interest, and (b) the Class A Covered
Amount for the related Interest Period,
(ii) the Class A Monthly Servicing Fee
for the related Interest Period and any
overdue Class A Monthly Servicing Fees,
(iii) the Class A Investor Default
Amount for such Monthly Period, and (iv)
unreimbursed Class A Investor
Charge-Offs (the aggregate of clauses
(i) through (iv), the "Class A Payment
Amount"), then first, Excess Spread, if
any, from Finance Charge Collections
allocable to the Class B Certificates
and the Collateral Interest will be
allocated to the Class A Certificates up
to the Class A Required Amount, and
second, Shared Finance Charge
Collections, if any, allocable to the
Certificates will be allocated to the
Class A Certificates up to the remaining
Class A Required Amount. If the sum of
such Excess Spread and Shared Finance
Charge Collections is less than the
Class A Required Amount for such Monthly
Period, Reallocated Collateral Principal
Collections and, if the foregoing is
insufficient, Reallocated Class B
Principal Collections with respect to
the related Monthly Period, will be used
to fund the remaining Class A Required
Amount. The Collateral Interest will be
reduced by the amount of Reallocated
Collateral Principal Collections and
Reallocated Class B Principal
Collections used to fund the Class A
Required Amount, and the Class B
Investor Interest will be reduced by the
amount of Reallocated Class B Principal
Collections in excess of the Collateral
Interest (after giving effect to
reductions for any Collateral Interest
Charge-Offs and any Reallocated
Collateral Principal Collections as of
the related Distribution Date) used to
fund the Class A Required Amount.
If, on the related Distribution Date,
Reallocated Principal Collections are
insufficient to fund the remaining Class
A Required Amount for such Monthly
Period, then the Collateral Interest
(after giving effect to reductions for
any Collateral Interest Charge-Offs and
Reallocated Principal Collections as of
such Distribution Date) will be reduced
by the amount of such deficiency (but
not by more than the Class A Investor
Default Amount for the related Monthly
Period). In the event that such
reduction would cause the Collateral
Interest to be a negative number, the
Collateral Interest will be reduced to
zero, and the Class B Investor Interest
(after giving effect to reductions for
any Class B Investor Charge-Offs and any
Reallocated Class B Principal
Collections as of such Distribution
Date) will be reduced by the amount by
which the Collateral Interest would have
been reduced below zero. In the event
that such reduction would cause the
Class B Investor Interest to be a
negative number, the Class B Investor
Interest will be reduced to zero and the
Class A Investor Interest will be
reduced by the amount by which the Class
B Investor Interest would have been
reduced below zero (such reduction, a
"Class A Investor Charge-Off").
If Finance Charge Collections allocable
to the Class B Investor Interest for any
Monthly Period are insufficient (such
insufficiency being the "Class B
Required Amount") to pay (i) interest
accrued on the Class B Certificates with
respect to the related Distribution Date
in an amount equal to the Class B
Monthly Cap Rate Interest due on the
related Distribution Date and any
overdue Class B Monthly Cap Rate
Interest, (ii) the Class B Monthly
Servicing Fee for the related Interest
Period and any overdue Class B Monthly
Servicing Fees, (iii) the Class B
Investor Default Amount for such Monthly
Period, and (iv) unreimbursed Class B
Investor Charge-Offs (the aggregate of
clauses (i) through (iv), the "Class B
Payment Amount"), then first, Excess
Spread, if any, from Finance Charge
Collections allocable to the Class A
Certificates and the Collateral
Interest, to the extent not required to
pay the Class A Required Amount for such
Monthly Period, will be allocated to the
Class B Certificates up to the Class B
Required Amount, and second, Shared
Finance Charge Collections, if any,
allocable to the Certificates and not
required to pay the Class A Required
Amount for such Monthly Period will be
allocated to the Class B Certificates up
to the remaining Class B Required
Amount. If the sum of such Excess Spread
and such Shared Finance Charge
Collections is insufficient to fund the
Class B Required Amount for such Monthly
Period, Reallocated Collateral Principal
Collections for the related Monthly
Period and not required to fund the
Class A Required Amount will be used to
fund the remaining Class B Required
Amount.
If, on the related Distribution Date,
Reallocated Collateral Principal
Collections not required to fund the
Class A Required Amount are insufficient
to fund the remaining Class B Required
Amount for such Monthly Period, then the
Collateral Interest (after giving effect
to reductions for any Collateral
Interest Charge-Offs, Reallocated
Principal Collections and any
adjustments made thereto for the benefit
of the Class A Certificateholders) will
be reduced by the amount of such
deficiency (but not by more than the
Class B Investor Default Amount for such
Monthly Period). In the event that such
reduction would cause the Collateral
Interest to be a negative number, the
Collateral Interest will be reduced to
zero, and the Class B Investor Interest
will be reduced by the amount by which
the Collateral Interest would have been
reduced below zero (such reduction, a
"Class B Investor Charge-Off"). In the
event of a reduction of the Class A
Investor Interest, the Class B Investor
Interest or the Collateral Interest, the
amount of principal and interest
available to fund payments with respect
to the Class A Certificates, the Class B
Certificates and the Collateral Interest
will be decreased. See "Description of
the Certificates--Reallocation of Cash
Flows" and "--Defaulted Receivables;
Adjustments and Fraudulent Charges".
Finance Charge Collections allocable to
the Collateral Interest for any Monthly
Period will be applied to pay the
Collateral Interest Monthly Servicing
Fee with respect to such Monthly Period
and any accrued and unpaid Collateral
Interest Monthly Servicing Fee with
respect to prior Monthly Periods, and
any such remaining Finance Charge
Collections will be applied as Excess
Spread.
With respect to the related Transfer
Date, Excess Spread not required to fund
the Class A Required Amount and the
Class B Required Amount, if any, will be
applied as specified in "Description of
the Certificates--Allocation of
Funds--Payment of Fees, Interest and
Other Items".
Required Collateral
Interest....................... The "Required Collateral Interest" with
respect to any Transfer Date means (a)
initially, the Initial Collateral
Interest and (b) on any Transfer Date
thereafter, an amount equal to [ ]% of
the Adjusted Investor Interest on such
Transfer Date, after taking into account
deposits into the Principal Funding
Account on such Transfer Date and all
payments to be made on the related
Distribution Date and all adjustments
made on such Transfer Date, but not less
than $[ ]; provided, however, that (1)
if certain reductions in the Collateral
Interest occur or if a Pay Out Event
occurs, the Required Collateral Interest
for such Transfer Date shall equal the
Required Collateral Interest for the
Transfer Date immediately preceding the
occurrence of such reduction or Pay Out
Event; (2) in no event shall the
Required Collateral Interest exceed the
unpaid principal amount of the Offered
Certificates as of the last day of the
Monthly Period preceding such Transfer
Date, less cash held in the Principal
Funding Account as of such Transfer
Date, after taking into account payments
to be made on the related Distribution
Date; and (3) the Required Collateral
Interest may be reduced at any time to a
lesser amount upon written confirmation
from the Rating Agency that such
reduction will not result in the Rating
Agency reducing or withdrawing its
rating on any then outstanding Series
rated by it. See "Description of the
Certificates--Required Collateral
Interest".
If on any Transfer Date, the Collateral
Interest has been reduced to an amount
less than the Required Collateral
Interest, Excess Spread, to the extent
available, will be used to increase the
Collateral Interest to the extent of
such shortfall. See "Description of the
Certificates--Allocation of
Funds--Excess Spread."
Interest Rate
Cap............................ On the Closing Date, the Trustee will
enter into the Class A Interest Rate Cap
and the Class B Interest Rate Cap with
the Interest Rate Cap Provider for the
exclusive benefit of the Class A
Certificateholders and the Class B
Certificateholders, respectively. On
each Transfer Date that the Class A
Certificate Rate or the Class B
Certificate Rate for the related
Interest Period exceeds the Class A Cap
Rate or the Class B Cap Rate,
respectively, the Interest Rate Cap
Provider will make a payment to the
Trustee, on behalf of the Trust, based
on the amount of such excess and the
notional amount of the applicable
Interest Rate Cap. The Class A Notional
Amount will at all times equal the
amount of the Expected Class A
Principal, and the Class B Notional
Amount will at all times equal the
amount of the Expected Class B
Principal. The Class A Interest Rate Cap
and the Class B Interest Rate Cap will
terminate on the day immediately
following the Class A Scheduled Payment
Date and the Class B Scheduled Payment
Date, respectively; provided, however,
that the Class A Interest Rate Cap and
the Class B Interest Rate Cap may each
be terminated at an earlier date if the
Trustee has obtained a Replacement
Interest Rate Cap or entered into a
Qualified Substitute Arrangement with
respect thereto.
Shared Collections............. In any Monthly Period during the
Revolving Period, Principal Collections
otherwise allocable to the Certificates,
to the extent not required to be paid to
the Collateral Interest Holder in
respect of the excess, if any, of the
Collateral Interest over the Required
Collateral Interest, will be available
to cover principal payments due to or
for the benefit of the
certificateholders of other Series. In
addition, if in any Monthly Period
during the Controlled Accumulation
Period the Principal Allocation is
greater than the sum of the Controlled
Deposit Amount for the class of Offered
Certificates entitled to receive
principal payments during such Monthly
Period and the Collateral Monthly
Principal, such excess will also be
available to cover principal payments
due to or for the benefit of
certificateholders of other Series and
holders of other undivided interests in
the Trust issued pursuant to the
Agreement and the applicable
Supplements. Such Principal Collections
applied to the payment of certificates
of other Series and to such other
interests in the Trust are herein
referred to as "Shared Principal
Collections". Any such application of
Shared Principal Collections to other
Series will not result in a reduction in
the Investor Interest of this Series. In
addition, amounts designated as Shared
Principal Collections pursuant to the
Supplement for any other Series may be
applied to cover principal payments due
to or for the benefit of the
Certificateholders. See "Description of
the Certificates--Allocation of Funds".
In any Monthly Period, the amount of
Excess Spread available after
application to the first fourteen items
listed in the sixth paragraph under
"Application of Funds" above (such
amount constituting "Shared Finance
Charge Collections") will be applied to
cover any shortfalls with respect to
certain amounts payable from Finance
Charge Collections allocable to any
other Series or other undivided
interests in the Trust then outstanding.
In addition, amounts designated as
Shared Finance Charge Collections
pursuant to the Supplement for any other
Series may be applied to cover certain
payments due to be made out of Finance
Charge Collections to the
Certificateholders, including the
reimbursement of reductions in the Class
B Investor Interest arising in
connection with the payment of the Class
A Required Amount and the reimbursement
of reductions in the Collateral Interest
arising in connection with the payment
of the Class A Required Amount and the
Class B Required Amount. See
"Description of the
Certificates--Allocation of Funds".
Shared Finance Charge Collections and
Shared Principal Collections will be
applied to any Series (and any related
undivided interests in the Trust) then
outstanding pro rata, based upon the
amount of shortfall, if any, with
respect to such Series (and such
interests).
Repurchase..................... The Investor Interest will be subject to
optional purchase by the Transferor on
any Distribution Date on which the
Investor Interest is reduced to an
amount less than or equal to 5% of the
Initial Investor Interest (after giving
effect to all payments to be made on
such date), if certain conditions set
forth in the Agreement are met. The
Investor Interest will be subject to
mandatory purchase by the Transferor on
the Distribution Date immediately
preceding the Scheduled Series 1997-1
Termination Date if the Investor
Interest is reduced to an amount less
than or equal to 5% of the Initial
Investor Interest, if certain conditions
set forth in the Agreement are met. The
mandatory purchase requirement is in
addition to any other provisions and
remedies provided by the Agreement and
will not serve to relieve any party of
obligations it may otherwise have or
waive any remedy that is otherwise
provided. The purchase price will equal
the Investor Interest, accrued and
unpaid interest on the Certificates and
all other amounts owing under the Loan
Agreement among the Trustee, the
Transferor, the Servicer and the
Collateral Interest Holder (the "Loan
Agreement") through the last day
preceding the Distribution Date on which
the purchase occurs. See "Description of
the Certificates--Final Payment of
Principal; Termination of the Trust".
Tax Status..................... Special tax counsel to the Transferor,
Mayer, Brown & Platt, is of the opinion
that under existing law the Offered
Certificates will be characterized as
indebtedness for federal income tax
purposes. Under the Agreement, the
Transferor, the Holder of the
Exchangeable Transferor Certificate and
the Offered Certificate Owners will
agree to treat the Certificates as debt
for tax purposes. See "Certain Federal
Income Tax Consequences" for additional
information concerning the application
of federal income tax laws.
ERISA Considerations........... Under regulations issued by the
Department of Labor, the Trust's assets
would not be deemed "plan assets" of an
employee benefit plan holding the
Offered Certificates of any class if
certain conditions are met, including
that the Offered Certificates of such
class be held by at least 100 persons
independent of the Transferor and each
other upon completion of the public
offering being made hereby. The Class A
Underwriters will not sell the Class A
Certificates to employee benefit plans
unless they believe that the Class A
Certificates will be held by at least
100 persons upon the completion of this
offering. The Transferor anticipates
that the other conditions of the
regulations will be met. The Class B
Certificates may not be acquired with
the assets of any employee benefit plan.
If the Trust's assets were deemed to be
"plan assets" of such a plan, there is
uncertainty as to whether existing
exemptions from the "prohibited
transaction" rules of the Employee
Retirement Income Security Act of 1974,
as amended ("ERISA"), would apply to all
transactions involving the Trust's
assets. Regardless of whether the
Trust's assets are deemed to constitute
"plan assets", an employee benefit
plan's purchase of Offered Certificates
may, in the absence of an exemption,
constitute a prohibited transaction if
any of the Transferor, the Servicer, the
Holder of the Exchangeable Transferor
Certificate, the Trustee or the
Underwriters is a party in interest with
respect to that plan. Accordingly,
employee benefit plans contemplating
purchasing the Offered Certificates
should consult their counsel before
making a purchase. See "Certain Employee
Benefit Plan Considerations".
Class A Certificate Rating..... It is a condition to the issuance of the
Class A Certificates that the Class A
Certificates be rated in the highest
generic rating category by at least one
nationally recognized rating agency.
Class B Certificate Rating..... It is a condition to the issuance of the
Class B Certificates that the Class B
Certificates be rated in one of the
three highest generic rating categories
by at least one nationally recognized
rating agency.
Listing........................ Application will be made to list the
Class A Certificates on the Luxembourg
Stock Exchange.
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RISK FACTORS
Limited Liquidity. There is currently no market for the Offered
Certificates. The Underwriters intend to make a market in the Offered
Certificates but are not obligated to do so. There is no assurance that a
secondary market will develop or, if it does develop, that it will provide
Offered Certificateholders with liquidity of investment or that it will continue
until the Offered Certificates are paid in full.
Certain Legal Aspects. While the Transferor transferred interests in the
Receivables to the Trust, a court could treat such transaction as an assignment
of collateral as security for the benefit of holders of certificates issued by
the Trust. The Transferor represents and warrants in the Agreement that the
transfer of the Receivables to the Trust is either a valid transfer and
assignment of the Receivables to the Trust or the grant to the Trust of a
security interest in the Receivables. The Transferor has taken certain actions
as are required to perfect the Trust's security interest in the Receivables and
warrants that if the transfer to the Trust is deemed to be a grant to the Trust
of a security interest in the Receivables, the Trustee will have a first
priority perfected security interest therein. Nevertheless, a tax or government
lien on property of the Transferor where notice of such lien has been filed
before Receivables are transferred to the Trust may have priority over the
Trust's interest in such Receivables, and if the FDIC were appointed conservator
or receiver of the Transferor, certain administrative expenses of the
conservator, receiver or the State of Connecticut Department of Banking may have
priority over the Trust's interest in such Receivables. See "Certain Legal
Aspects of the Receivables--Transfer of Receivables".
To the extent that the Transferor has granted a security interest in the
Receivables to the Trust and that security interest was validly perfected before
the appointment of the FDIC as conservator or receiver and before the
Transferor's insolvency, and certain other conditions are satisfied including
that such security interest was not taken in contemplation of the insolvency of
the Transferor, and was not taken with the intent to hinder, delay or defraud
the Transferor or the creditors of the Transferor, such security interest should
be enforceable (to the extent of the Trust's "actual direct compensatory
damages") and should not be subject to avoidance by the FDIC, as receiver or
conservator for the Transferor, and, therefore, in such circumstances, payments
to the Trust with respect to the Receivables (up to the amount of such damages)
should not be subject to recovery by a conservator or receiver for the
Transferor. The foregoing conclusions are based on FDIC general counsel opinions
and policy statements regarding the application of certain provisions of the
Federal Deposit Insurance Act (as amended, the "FDIA"). While a Policy Statement
of the Resolution Trust Company (the "RTC") indicates that "actual direct
compensatory damages" would include outstanding principal plus interest accrued
to the date of payment, in one case a federal district court held that such
damages constituted the fair market value of the repudiated bonds as of the date
of repudiation, which, with respect to the Certificates, depending upon
circumstances existing on the date of repudiation, could be an amount less than
the outstanding principal plus interest accrued to the date of repudiation. The
FDIC has not adopted a policy statement on payment of interest on collateralized
borrowings of banks. If the conservator or receiver for the Transferor were to
assert that such security interest should not be enforceable or should be
subject to avoidance or were to require the Trustee to establish its right to
those payments by submitting to and completing the administrative claims
procedure under the FDIA, or the conservator or receiver were to request a stay
of proceedings with respect to the Transferor as provided under the FDIA, delays
in payments on the Certificates and possible reductions in the amount of those
payments could occur. In addition, the appointment of a receiver or conservator
could result in administrative expenses of the receiver or conservator having
priority over the interest of the Trust in the Receivables. The FDIC, as
conservator or receiver, would also have the rights and powers conferred under
Connecticut law. See "Certain Legal Aspects of the Receivables--Certain Matters
Relating to Conservatorship and Receivership".
If a conservator or receiver were appointed for the Transferor, then a
Pay Out Event could occur with respect to all Series then outstanding and,
pursuant to the Agreement, new Principal Receivables would not be transferred to
the Trust and, unless holders of more than 50% of the investor interest of each
Series of certificates issued and outstanding (or with respect to any Series
with two or more classes, more than 50% of each class) instruct otherwise, the
Trustee would sell the portion of the Receivables allocable to each Series that
did not vote
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<PAGE>
to disapprove of the sale of the Receivables in accordance with the Agreement in
a commercially reasonable manner and on commercially reasonable terms, which may
cause early termination of the Trust and a loss to certificateholders of each
such Series (including the Certificateholders) if the proceeds from such early
sale allocable to such Series, if any, and the amounts available under any
Enhancement applicable to such Series were insufficient to pay
certificateholders of such Series in full. If the only Pay Out Event to occur is
either the insolvency of the Transferor or the appointment of a conservator or
receiver for the Transferor, the conservator or receiver would have the power to
prevent the early sale, liquidation or disposition of the Receivables and the
commencement of the Rapid Amortization Period. A conservator or receiver may
also have the power to cause the early sale of the Receivables and the early
retirement of the Certificates, to prohibit the continued transfer of Principal
Receivables to the Trust, and to repudiate the servicing obligations of the
Transferor. In addition, in the event of a Servicer Default relating to the
insolvency of the Servicer, if no Servicer Default other than such
conservatorship or receivership or insolvency exists, the conservator or
receiver for the Servicer may have the power to prevent either the Trustee or
the certificateholders from appointing a successor Servicer. See "Certain Legal
Aspects of the Receivables--Certain Matters Relating to Conservatorship and
Receivership".
Consumer Protection Laws. The Accounts and Receivables are subject to
numerous federal and state consumer protection laws imposing requirements on the
making, enforcement and collection of consumer loans. The United States Congress
("Congress") and the states may enact laws and amendments to existing laws to
regulate further the credit card industry or to reduce finance charges or other
fees or charges applicable to credit card accounts. Such laws, as well as any
new laws or rulings which may be adopted, may adversely affect the Servicer's
ability to collect on the Receivables or maintain the required level of periodic
finance charges, annual membership fees and other fees. In addition, failure by
the Servicer to comply with such requirements could adversely affect the
Servicer's ability to enforce the Receivables. During recent years, federal
legislative proposals have attempted to limit the maximum annual percentage rate
that issuers may assess on credit card accounts. If such legislation were
enacted and imposed containing an interest rate cap substantially lower than the
annual percentage rates currently assessed on the Accounts, it is likely that
the Portfolio Yield (averaged over a period of three consecutive Monthly
Periods) would be reduced to a rate below the Base Rate for the last of such
Monthly Periods and therefore a Pay Out Event would occur with respect to the
Certificates. See "Description of the Certificates--Pay Out Events". In
addition, during recent years, there has been increased consumer awareness with
respect to the level of finance charges and fees and other practices of credit
card issuers. As a result of these developments and other factors, there can be
no assurance as to whether any federal or state legislation will be promulgated
imposing additional limitations on the monthly periodic finance charges or fees
relating to the Accounts.
Pursuant to the Agreement, the Transferor covenants to accept
reassignment of each Receivable not complying in all material respects with all
requirements of applicable law as of the time of its creation if, as a result of
such noncompliance, the related Account becomes a Defaulted Account or the
Trust's rights in, to or under the Receivable or its proceeds are impaired or
unavailable. The Transferor makes certain other representations and warranties
relating to the validity and enforceability of the Receivables. The Trustee has
not, however, and it is not anticipated that it will, make any examination of
the Receivables or the records relating thereto for the purpose of establishing
the presence or absence of defects, compliance with such representations and
warranties, or for any other purpose. The sole remedy if any such representation
or warranty is breached and such breach continues beyond the applicable cure
period is that the Transferor will be obligated to accept reassignment of the
Investor Interest in the Receivables affected thereby. See "Description of the
Certificate--Representations and Warranties" and "Certain Legal Aspects of the
Receivables--Consumer Protection Laws".
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders in the Receivables if such laws
result in any Receivables being written off as uncollectible when there are
insufficient funds available to reimburse such losses. See "Description of the
Certificates--Defaulted Receivables; Adjustments and Fraudulent Charges".
7
<PAGE>
Competition in the Credit Card Industry. The credit card industry is
highly competitive and operates in an environment increasingly focused on the
interest and fees charged to consumers for credit card services. As new card
issuers enter the market and issuers seek to expand their shares of the market,
there is increased use of advertising, target marketing, pricing competition and
incentive programs, all of which may adversely impact issuer profit margins. The
MasterCard and Visa organizations do not require adherence to specific
underwriting standards, and therefore credit card issuers may compete on the
basis of individual account solicitation and underwriting criteria. People's
Bank has traditionally competed as a low fixed-rate provider of credit card
services targeting highly credit-worthy customers who carry balances on their
credit cards. The growth of People's Bank's credit card portfolio is largely due
to customers who, attracted by People's Bank's low rates, have transferred
balances from competing credit card issuers, as well as due to higher balances
from purchases and cash advances. The Transferor is participating in such
competition through direct marketing programs, average annual percentage rates
and monthly minimum payment rates the Transferor believes compare favorably to
rates and fees charged by certain of the Transferor's competitors and operating
efficiencies which permit it to maintain a favorable cost structure. If
cardholder choose to utilize competing sources of credit, the amount and rate of
new Receivables generated in the Accounts may be reduced and certain purchase
and payment patterns with respect to Receivables may be affected. The size of
the Trust will be dependent upon the Transferor's continued ability to generate
new Receivables. If the amount of new Receivables generated declines
significantly, Receivables from Additional Accounts (to the extent available)
may be added to the Trust, as described below, or a Pay Out Event could occur,
in which event the Rapid Amortization Period would commence. See "Description of
the Certificates--Pay Out Events".
Payments and Maturity. The Receivables may be paid at any time, and
there is no assurance that there will be additional Receivables created in the
Accounts or that any particular pattern of cardholder repayments will occur. The
commencement and continuation of the Controlled Accumulation Period will be
dependent upon the continued generation of new Receivables to be conveyed to the
Trust. A significant decline in the amount of Receivables generated could result
in the occurrence of a Pay Out Event for the Certificateholders and the
commencement of the Rapid Amortization Period. Certificateholders should be
aware that the Transferor's ability to continue to compete in the current
industry environment will affect the Transferor's ability to generate new
Receivables to be conveyed to the Trust and may also affect payment patterns.
The minimum monthly payment currently required on the Accounts generally
approximates 3% of the statement balances (as of specific dates), plus past due
amounts. A portion of the Receivables volume is a result of convenience use by
obligors who pay their entire monthly statement balance on or prior to its due
date and do not incur finance charges thereon. A significant decrease in the
cardholder monthly payment rate or minimum required payment could slow the
accumulation of principal during the Controlled Accumulation Period or delay the
payment of principal on the Class A Scheduled Payment Date or the Class B
Scheduled Payment Date or during the Rapid Amortization Period, and such delay
of the accumulation of principal or payment of principal, as the case may be,
could adversely affect the ability of investors to reinvest profitably. See
"--Ability to Change Terms of the Receivables", "Maturity Considerations" and
"The Credit Card Business of People's Bank--Underwriting Procedures".
Social, Technological and Economic Factors. Changes in card usage and
payment pattern by cardholder may result from a variety of social, technological
and economic factors. Social factors include potential changes in consumers'
attitudes to financing purchases with debt. Economic factors include the rate of
inflation, unemployment levels, personal bankruptcy levels and relative interest
rates. Technological factors include new methods of payment, such as debit
cards. As a consequence of some of these factors, the credit card industry has
in recent months experienced generally increased levels of losses and
delinquencies. The loss and delinquency experience of the Trust Portfolio has
reflected that trend.
While the Trust Portfolio is a geographically diverse portfolio, the
largest concentration of accounts giving rise to the Receivables included in the
Trust Portfolio are in Connecticut. The concentration of such accounts in
Connecticut is currently approximately 16%. See "The Receivables". The loss and
delinquency experience in Connecticut is currently more favorable than the
experience of the Transferor's overall portfolio of accounts as a whole.
Connecticut's economy has historically been highly dependent on the aerospace
defense industries, and, to
8
<PAGE>
a lesser extent, the insurance industry. Overall job growth in Connecticut
continues to lag behind the national average due to defense budget cutbacks
adversely affecting the defense industry and structural changes in the financial
services industry. During the past several years, Connecticut has been adversely
impacted by employment losses more severe than those of the United States as a
whole. Connecticut residents continue, however, to have among the highest per
capita income in the United States. The Transferor is unable to determine and
has no basis to predict whether, or to what extent, social, technological or
economic factors will affect future credit card usage or payment patterns.
Effect of Subordination of the Class B Certificates. The Class B
Certificates are subordinated in right of payment of principal to payments of
principal and interest on the Class A Certificates. Payments of principal in
respect of the Class B Certificates will not commence until after the principal
payment with respect to the Class A Certificates has been made as described
herein. In addition, the Class B Investor Interest is subject to reduction if
the Class A Required Amount for any Monthly Period is not funded from
Collections allocable to the Class A Investor Interest, from payments under the
Class A Interest Rate Cap, from Excess Spread, from Shared Finance Charge
Collections from other Series allocable to the Certificates or from Reallocated
Collateral Principal Collections and if the Collateral Interest has been reduced
to zero. If the Class B Investor Interest suffers such a reduction, the portion
of Finance Charge Collections allocable to the Class B Certificateholders in
future Monthly Periods will be reduced and principal and interest payments on
the Class B Certificates may be delayed or reduced. See "Description of the
Certificates--Subordination of the Class B Certificates". Such reductions of the
Class B Investor Interest will thereafter be reimbursed and the Class B Investor
Interest increased on each Distribution Date by the amount, if any, of Excess
Spread and Shared Finance Charge Collections from other Series available for
that purpose for such Distribution Date.
Further, in the event of a sale of the Receivables due to an Insolvency
Event, the portion of the net proceeds of such sale allocable to pay principal
of the Certificateholders' interest in such Receivables will first be used to
pay principal amounts due to the Class A Certificateholders and will then be
used to pay amounts due to the Class B Certificateholders, thereby causing a
loss to Class B Certificateholders if such remaining portion is insufficient to
pay the Class B Certificateholders in full. See "Description of the
Certificates--Principal Payments" and "--Pay Out Events". If the Class B
Investor Interest is reduced to zero, the Class A Certificateholders will bear
directly the credit and other risks associated with their undivided interest in
the Trust.
Ability to Change Terms of the Receivables. Pursuant to the Agreement,
the Transferor has not transferred, and will not transfer, the Accounts to the
Trust. Only the Receivables arising in the Accounts have been and will be so
transferred. As owner of the Accounts, the Transferor has the right (to the
extent provided in the applicable credit card agreements and the Agreement) to
determine the monthly periodic finance charge and other fees which will be
applicable from time to time to the Accounts, to alter the minimum monthly
payment required on the Accounts and to change various other terms with respect
to the Accounts. A decrease in the monthly periodic finance charges, annual
membership fees, cash advance fees or Interchange could decrease the effective
yield on the Accounts and could result in the occurrence of a Pay Out Event for
the Certificateholders and the commencement of the Rapid Amortization Period.
Under the Agreement, the Transferor has agreed that, except as otherwise
required by law or as is deemed by the Transferor to be necessary in order to
maintain its credit card business, based upon a good faith assessment by it, in
its sole discretion, of the nature of the competition in that business, the
Transferor will not (i) reduce the annual percentage rate which determines the
monthly periodic finance charges assessed on the Receivables or other fees on
the accounts, if as a result of such reduction, its reasonable expectation of
the Portfolio Yield as of such date would be less than the weighted average base
rates of all Series or (ii) unless required by law, reduce such periodic finance
charge if its reasonable expectation is that the Portfolio Yield would be less
than the highest certificate rate for any Series then issued and outstanding.
Such changes may include the reduction or waiver of annual membership fees in
connection with the Transferor's marketing effort. The term "Base Rate" with
respect to the Certificates generally means, with respect to any Monthly Period,
the weighted average of (x) the lesser of the Class A Certificate Rate and Class
A Cap Rate, (y) the lesser of the Class B Certificate Rate and the Class B Cap
Rate, and (z) the Collateral Rate (weighted based on the Class A Investor
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Interest, the Class B Investor Interest and the Collateral Interest,
respectively, as of the last day of the preceding Monthly Period) plus the
product of the Servicing Fee Rate and a fraction the numerator of which is the
Adjusted Investor Interest and the denominator of which is the Investor
Interest. The term "Portfolio Yield" means generally, with respect to the
Certificates and any Monthly Period, the annualized percentage equivalent of a
fraction, the numerator of which is equal to the sum of the Finance Charge
Receivables allocable to the Investor Interest billed during such Monthly Period
after subtracting the Investor Default Amounts for such Monthly Period (but in
no event greater than the aggregate amount of Collections for such Monthly
Period), Principal Funding Investment Proceeds and amounts withdrawn from the
Reserve Account and deposited into the Finance Charge Account and allocable to
the Certificates for such Monthly Period, and the denominator of which is the
Investor Interest as of the last day of the preceding Monthly Period. In
addition, the Transferor has agreed that, upon the occurrence of the Pay Out
Event described in clause (iv) of "Description of the Certificates--Pay Out
Events" (relating to the average of the Portfolio Yield for any three
consecutive Monthly Periods being less than the Base Rate), the Transferor will
not, unless required by law, reduce the annual percentage rate determining the
monthly periodic finance charges on the Accounts to a rate resulting in the
weighted average of the base rates for all Series. The Transferor has also
agreed not to change the terms of the Accounts, unless (i) if the Transferor has
a comparable segment of credit card accounts, the change is also made applicable
to the comparable segment of the portfolio of accounts with similar
characteristics owned by it and (ii) if the Transferor does not own such a
comparable segment, any such change is not made with the intent to benefit the
Transferor materially over the Certificateholders. In servicing the Accounts,
the Servicer is also required to exercise the same care and apply the same
policies that it exercises in handling similar matters for its own comparable
accounts. Except as specified above, there are no restrictions on the
Transferor's ability to change the terms of the Accounts. While the Transferor
has no current intention of decreasing the monthly periodic finance charges on
the overall Trust Portfolio, there can be no assurance that changes in
applicable law, changes in the marketplace or prudent business practice might
not result in a determination by the Transferor to take actions changing this or
other Account terms.
Master Trust Considerations. The Trust, as a master trust, will issue
the Certificates, has issued five prior Series of certificates, one of which has
been paid in full, and may issue additional Series of certificates in the
future. See "Annex I: Prior Series Issued and Outstanding". While the Principal
Terms of any Series will be specified in a Supplement, the provisions of a
Supplement and, therefore, the terms of any additional Series, will not be
subject to the prior review or consent of holders of the certificates of any
previously issued Series. Such Principal Terms may include methods for
determining applicable investor percentages and allocating Collections,
provisions creating different or additional security or other Enhancement,
provisions subordinating such Series to another Series (if the Supplement
relating to such Series so permits; the Series 1997-1 Supplement will not permit
the subordination of Series 1997-1 to any other Series) or other Series to such
Series, and any other amendment or supplement to the Agreement which is made
applicable only to such Series. It is a condition precedent to the issuance of
any additional Series that either (x) the Rating Agency delivers written
confirmation to the Trustee that such issuance or Exchange will not result in
the Rating Agency reducing or withdrawing its rating on any outstanding Series
or (y) if at the time of the issuance or Exchange there is no outstanding Series
currently rated by a Rating Agency, a nationally recognized investment banking
firm or commercial bank deliver a certificate to the Trustee to the effect that
the issuance or Exchange will not have an adverse effect on the timing or
distribution of payments to such other Series. There can be no assurance,
however, that the Principal Terms of any other Series, including any Series
issued from time to time hereafter, or that a change in the character of the
Trust Portfolio, through, for instance, the addition of Receivables arising from
Accounts and Receivables arising from Additional Accounts, might not have an
impact on the timing and amount of payments received by a Certificateholder,
including as a result of the refixing of the Investor Percentage with respect to
the allocation of the Principal Receivables. See "Description of the
Certificates--Exchanges" and "--Allocation Percentages".
Control. Subject to certain exceptions, the certificateholders of each
Series may take certain actions, or direct certain actions to be taken, under
the Agreement or the related Supplement. Under certain circumstances, however,
the consent or approval of a specified percentage of the aggregate investor
interest of all Series or of the investor interest of each Series will be
required to take or direct certain actions, including requiring the appointment
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<PAGE>
of a successor Servicer following a Servicer Default, amending the Agreement in
certain circumstances and directing a repurchase of all outstanding Series upon
the breach of certain representations and warranties by the Transferor. In such
instances, the interests of the Holders of the Certificates may not be aligned
with the interests of the holders of certificates of such other Series. Thus,
even if the requisite majority of Certificateholders votes to take or direct
such action, the certificateholders of such other Series may control whether or
not such action occurs.
Certificate Ratings. It is a condition to issuance of the Class A
Certificates that the Class A Certificates be rated in the highest generic
rating category by at least one nationally recognized rating agency. It is a
condition to the issuance of the Class B Certificates that the Class B
Certificates be rated in one of the three highest generic rating categories by
at least one nationally recognized rating agency. As used herein, the term
"Rating Agency" with respect to the Certificates, and with respect to any other
Series, means the rating agency or agencies from whom ratings have been
solicited as specified in the Supplement with respect to such Series. The
ratings address the likelihood of full payment of principal and interest of the
Certificates by the Scheduled Series 1997-1 Termination Date. The ratings are
based primarily on the quality of the Receivables, the credit support provided
by the Collateral Interest, the Interest Rate Caps and, with respect to the
rating of the Class A Certificates, the terms of the Class B Certificates. The
ratings are not a recommendation to purchase, hold or sell Certificates,
inasmuch as such ratings do not comment as to the market price or suitability
for a particular investor. There is no assurance that the ratings will remain
for any given period of time or that the ratings will not be lowered or
withdrawn by the Rating Agency if in its judgment circumstances so warrant. The
ratings do not address the possibility of the occurrence of a Pay Out Event, and
they do not address the likelihood of any payment in respect of either Class A
Excess Interest or Class B Excess Interest.
Limited Credit Enhancement. Although credit enhancement with respect to
the Offered Certificates will be provided by (i) the Collateral Interest and
(ii) with respect to the Class A Certificates, the subordination of the Class B
Certificates, the Collateral Interest and the Class B Investor Interest are
limited and will be reduced by certain claims made that are not paid from
Finance Charge Collections allocated to the Certificates and are not reimbursed
from Excess Spread or Shared Finance Charge Collections. If Finance Charge
Collections allocated to the Investor Interest, Excess Spread, Shared Finance
Charge Collections allocated to the Certificates, and Reallocated Principal
Collections are not sufficient to cover the Class A Investor Default Amount and
the Class B Investor Default Amount in any Monthly Period and if the Collateral
Interest has been reduced to zero, the Investor Interest will be reduced (unless
it is otherwise reimbursed) resulting in a reduction of the amount of
Collections allocable to Certificateholders in future Monthly Periods and in a
reduction of the aggregate principal amount returned to the Certificateholders.
If the Collateral Interest and, with respect to the Class A Certificates, the
Class B Investor Interest are reduced to zero, Certificateholders will bear
directly the credit and other risks associated with their undivided interest in
the Trust. See "Description of the Certificates--Reallocation of Cash Flows" and
"--Defaulted Receivables; Adjustments and Fraudulent Charges".
Reductions of the Collateral Interest and the Class B Investor Interest
will be reimbursed by Excess Spread and Shared Finance Charge Collections which
are allocated and available to fund such amounts. Certain factors, such as
lowering the finance charges (including late fees and membership charges) on
outstanding Receivables balances and increased convenience use by obligors, who
pay their entire monthly statement balance on or prior to its due date and do
not incur finance charges thereon, may lower the amount of Finance Charge
Receivables generated as well as Collections in respect thereof, and may thereby
reduce the Excess Spread and Shared Finance Charge Collections available to
replenish the credit enhancement. See "Description of the
Certificates--Allocation of Funds". Finally, a slowing in payment rates on the
Receivables could extend the final Distribution Date for the Class A
Certificates and Class B Certificates beyond the Scheduled Payment Date for each
such class. See "--Payment and Maturity". The Collateral Interest and the Class
B Investor Interest may only be utilized to cover Required Amounts on and prior
to the Scheduled Series 1997-1 Termination Date and will not be available
otherwise to pay the remaining principal on the Certificates at any time.
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<PAGE>
Book-Entry Registration. The Offered Certificates will be initially
represented by one or more certificates registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the Offered
Certificate Owners or their nominees. Because of this, unless and until
Definitive Certificates are issued, Offered Certificate Owners will not be
recognized by the Trustee as Offered Certificateholders, as that term is used in
the Agreement. Hence, until such time, Offered Certificate Owners will only be
able to exercise the rights of Offered Certificateholders indirectly through DTC
and its participating organizations. See "Description of the
Certificates--Book-Entry Registration" and "--Definitive Certificates".
Reports to Certificateholders. Unless and until Definitive Certificates
are issued, monthly and annual reports, containing information concerning the
Trust and prepared by the Servicer, will be sent on behalf of the Trust to Cede,
as nominee for DTC and the registered holder of the Offered Certificates. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles and will not be sent by the Servicer or
the Trustee to the Offered Certificate Owners. See "Description of the
Certificates--Book- Entry Registration", "--Definitive Certificates", and
"--Reports to Certificateholders".
Effect of Reduced Rate of Principal Payments on Interest Rate Cap
Coverage. The Class A Notional Amount and the Class B Notional Amount will
amortize according to the expected accumulation and amortization schedules,
respectively, of the Class A Certificates and Class B Certificates, based upon
equal payments of the Controlled Accumulation Amount being paid monthly for four
months, commencing on the [ ] Transfer Date, and the Class B Controlled
Amortization Amount being paid in the fifth month following the Controlled
Accumulation Date. If the rate of accumulation of the Class A Certificates or
the rate of amortization of the Class B Certificates occurs at a rate that is
slower than such expected rate, the amount of any Class A Excess Principal or
Class B Excess Principal will not have the benefit of the Interest Rate Caps. In
addition, the Certificates will not include the right to receive any interest on
Excess Principal in excess of the Class A Cap Rate or the Class B Cap Rate, as
applicable. While distributions may be made in respect of the Class A Excess
Interest or the Class B Excess Interest, such distributions are not addressed in
the ratings assigned by the Rating Agencies.
THE TRUST
The Trust has been formed in accordance with the laws of the State of
New York pursuant to the Agreement. Prior to its formation, the Trust did not
have any assets or obligations. The Trust has not and will not engage in any
activity, other than as described herein. The Trust will exist only for the
transactions described herein, including the receipt of the Receivables and
holding such Receivables, the issuance of the Exchangeable Transferor
Certificate, the issuance of certificates of other, previously-issued Series,
the issuance of the Certificates and other undivided interests representing
additional Series and related activities (including, with respect to any Series,
receiving any Enhancement and entering into the Enhancement agreement relating
thereto) and making payments thereon. As a consequence, the Trust is not
expected to have any need for additional capital resources.
THE CREDIT CARD BUSINESS OF PEOPLE'S BANK
General
People's Bank began its credit card program in 1985 by marketing a low
interest rate credit card to highly creditworthy individuals in its market area.
As a result of the initial program's success, People's Bank expanded the program
nationally. The Nilson Report ranked People's Bank the 26th largest VISA USA,
Inc. ("VISA") and MasterCard International Incorporated ("MasterCard") credit
card issuer in the United States as of September 30, 1996 on the basis of
outstanding balances.
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People's Bank further expanded its credit card operations in 1996 by
establishing a limited branch in the United Kingdom, which had generated credit
card receivables of $49.5 million at December 31, 1996.
The Receivables conveyed or to be conveyed to the Trust by People's Bank
pursuant to the Agreement have been or will be generated from transactions made
by holders of certain VISA and certain MasterCard credit card accounts, a subset
of People's Bank's entire portfolio of credit card accounts, and include finance
charges and fees billed to the Accounts. The Accounts were generated under the
VISA or MasterCard associations of which People's Bank is a member.
People's Bank services all of its accounts and receivables at its
facilities located in Bridgeport, Connecticut. Certain operations are performed
on behalf of People's Bank by Total System Services, Inc., of Columbus, Georgia
("Total System"), which operations include statement processing, printing and
mailing. People's Bank has used Total System for such services since it launched
its credit card program in 1985. If Total System were to fail or become
insolvent, delays in processing and recovery of information with respect to
charges incurred by cardholder could occur, and the replacement of such services
provided to People's Bank could be time-consuming. As a result, delays in
payments to Certificateholders could occur.
The entire portfolio of People's Bank VISA and MasterCard credit card
accounts (the "Bank Portfolio"), of which the accounts giving rise to the Trust
Portfolio are a part, includes premium accounts (i.e., VISA Gold, Gold
MasterCard and business accounts) and standard accounts (i.e., VISA Classic and
standard MasterCard). The accounts from which Receivables arose in the initial
Trust Portfolio included only the standard accounts and not premium accounts.
Effective with the May 1, 1996 addition of Additional Accounts, the Trust
Portfolio includes both standard and premium accounts. As of December 31, 1996,
4.98% of the accounts in the Bank Portfolio were premium accounts and 95.02%
were standard accounts, and the receivables balance of premium accounts and
standard accounts, as a percentage of the total balance of the receivables in
the Bank Portfolio, was 5.33% and 94.67%, respectively. Both premium and
standard accounts undergo the same credit analysis, but premium accounts
generally carry higher annual membership fees and have higher credit limits.
The VISA and MasterCard credit card accounts may be used for three types
of transactions: credit card purchases, cash advances and convenience checks.
Purchases occur when cardholder use credit cards to buy goods and/or services. A
cash advance is made when a credit card is used to obtain cash from a financial
institution or an automated teller machine. Cardholder may also use convenience
checks allowing cardholder to (i) transfer balances from other credit card
accounts to their People's Bank accounts and (ii) draw against their VISA and
MasterCard credit card accounts at any time. Amounts due with respect to
purchases, cash advances and convenience checks are included in the Receivables.
In addition, cardholder have been able to purchase insurance covering
their account balances since March 1985. Premiums for this insurance are charged
to the account for each monthly Billing Cycle. Such insurance premiums are
included in the Receivables transferred to the Trust and are treated as Finance
Charge Receivables.
Each cardholder is subject to an agreement with People's Bank governing
the terms and conditions of the related VISA or MasterCard credit card account.
Pursuant to each such agreement, except as described herein, People's Bank
reserves the right, subject to fifteen days' prior notice to the cardholder or
as may be required by law, to add to, change or terminate any terms, conditions,
services or features of its VISA or MasterCard credit card accounts at any time,
including increasing or decreasing the periodic finance charges, other charges
or the minimum monthly payment requirements.
The credit evaluation, collection and charge-off policies and servicing
practices of People's Bank, as well as the terms and conditions governing
cardholder agreements in effect as of the date hereof, are under continuous
review and may change at any time in accordance with its business judgment,
applicable law and guidelines established by regulatory authorities.
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Transactions creating the Receivables through the use of the credit
cards are processed through the VISA and MasterCard systems. Should either
system materially curtail its activities, or should People's Bank cease to be a
member of VISA or MasterCard, for any reason, a Pay Out Event could occur, and
delays in payments on the Receivables and possible reductions in the amounts
thereof could also occur.
Account Origination
The VISA and MasterCard credit card accounts owned by People's Bank were
principally generated through: (i) direct mail solicitations of individuals who
have been prescreened at credit bureaus on the basis of criteria furnished by
People's Bank; (ii) applicant-initiated requests; (iii) applications mailed to
customers of People's Bank and customers of certain agent banks for which
People's Bank acts as a sponsor with VISA and/or MasterCard pursuant to People's
Bank's Agent Bank Account program (the "Agent Bank Accounts"); and (iv) affinity
marketing programs which are originated by People's Bank by soliciting
prospective cardholder from identifiable groups with a common interest or a
common cause, and with the assistance of an organization of the members of such
group ("Affinity Program Accounts"). In addition to these account origination
methods, People's Bank originates certain co-brand accounts and solicits
accounts from students and alumni of local Connecticut universities. People's
Bank applies the same credit criteria without distinction among the foregoing
sources of applications, as described below in "Underwriting Procedures", and
the performance by the cardholder of such accounts is generally comparable to
the remaining Bank Portfolio of accounts.
The largest percentage of all national accounts are originated through
targeted, prescreened direct-mail requests and a significant number of accounts
are originated through applicant-initiated requests. People's Bank's strategy of
offering a low interest rate credit card to highly creditworthy customers has
received significant attention by national consumer groups, consumer focused
publications and financial journals. These sources frequently publish
information regarding People's Bank's credit card products, including People's
Bank's toll free customer service telephone number. Prospective applicants
contact People's Bank using the toll free telephone number and request an
application, which they then complete and return to People's Bank, or complete
an application over the telephone.
Underwriting Procedures
All applications for accounts originated by People's Bank are reviewed
for completeness and creditworthiness based on the credit underwriting criteria
established by People's Bank. People's Bank uses credit reports issued by
independent credit reporting agencies with respect to the applicant. In the
event there are discrepancies between the application and the credit report, and
in certain other circumstances, People's Bank may verify certain information
regarding the applicant.
Applications and prescreened direct mail candidates are evaluated by
utilizing a credit scoring system, which was installed in July 1992. New scoring
models for prescreened and nonprescreened business were also installed in 1996.
Prior to such installation, People's Bank's credit card accounts were
underwritten completely judgmentally. Since July 1992, the judgmental
underwriting has been used to evaluate only those who score above a preset
level. The credit scoring model used by People's Bank was developed with Fair,
Isaac Companies, which has extensive experience in developing credit scoring
models. Credit scoring is intended to provide a general indication, based on the
information available, of the applicant's willingness and ability to repay his
or her obligations. Credit scoring evaluates a potential cardholder's credit
profile and certain application information in order to statistically quantify
credit risk. Models for credit scoring are developed by using statistics to
evaluate common characteristics and their correlation with credit risk. From
time to time, the credit scoring models used by People's Bank are reviewed and
are periodically updated to reflect more current statistical data. Based on
statistical analysis, People's Bank established a policy, as of August 1, 1994,
that certain accounts receiving high credit scores may be automatically approved
without judgmental review.
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In the case of prescreened direct mail solicitations, selection criteria
established by People's Bank are used by credit bureaus to generate or screen
lists of qualifying individuals. Members of People's Bank's Credit Card Services
then mail solicitations to those qualifying individuals on the list. Additional
credit criteria are applied on a case-by-case basis to those qualifying
individuals accepting such solicitation to determine the appropriate line of
credit for such individuals. The information requested in the response forms
mailed to prescreened prospects is less extensive than the information requested
in the applications mailed to individuals who have not been prescreened. Credit
limits are assigned to prescreened prospective cardholder based on a credit
profile that includes existing indebtedness, past payment patterns on other
consumer loans and certain other criteria. The response forms of individuals
responding to prescreened direct mail solicitations are reviewed by People's
Bank and are checked again through credit reporting bureaus. If no change in
credit performance has occurred, an offer of credit is made. Generally, each new
cardholder is issued a credit card that expires two years after issuance.
People's Bank generally reissues credit cards with two-year expiration dates, so
long as the payment history of the cardholder satisfies certain criteria.
Billing and Payments
The Bank Portfolio has different billing and payment structures,
including minimum payment levels, annual membership fees and monthly periodic
charges.
For purposes of administrative convenience, the VISA and MasterCard
credit card accounts of People's Bank are currently grouped into twenty-two
billing cycles ending on the 5th through 27th day of each month (other than the
24th day) (each, a "Billing Cycle"). Each Billing Cycle has its own monthly
billing date, at which time the activity in the related accounts during the
month ending on such billing date is processed and billed to accountholders. See
"The Receivables". The Accounts include VISA and MasterCard credit card accounts
in Billing Cycles ending at the close of business on each of the days referred
to above. See "The Receivables".
Monthly billing statements are sent to accountholders with either debit
or credit activity during the Billing Cycle. Generally, each month,
accountholders must make at least a minimum payment equal to the greater of (i)
3% of the account balance and (ii) $10, plus any past due amount; provided,
however, that if the remaining balance is less than $10, the minimum payment
will be equal to the amount of such remaining balance.
The monthly periodic finance charges assessed on cash advances and
convenience checks are calculated by multiplying the average daily cash advance
balance by the applicable monthly periodic rate. Monthly periodic finance
charges are calculated on cash advances (including unpaid finance charges) from
the date of the transaction or, if a convenience check is used, the day the
convenience check is posted to the cardholder's account. The monthly periodic
finance charges assessed on purchases are calculated by multiplying the average
daily purchase balance by the applicable monthly periodic rate. Monthly periodic
finance charges are calculated on purchases (including certain fees and unpaid
finance charges) from the date of the purchase or the first day of the Billing
Cycle in which the purchase is posted to the account (whichever is later). The
credit card agreement provides that monthly periodic finance charges are not
assessed in most circumstances on purchases if the purchaser's new balance shown
in the billing statement is paid within 25 days after the last day of the
Billing Cycle, or if the purchaser's previous balance is zero. With certain
exceptions, the current fixed annual percentage rate for purchases is 13.9%;
however, periodically People's Bank will offer introductory rates below the
standard rate. An increase in the fixed annual percentage rate for purchases
might have the result of decreasing the volume of Receivables generated. The
current fixed annual percentage rate for cash advances is 19.8%. For a
break-down of the yield from finance charges and fees billed, see the table
titled "Revenue Experience Representative Portfolio" included under "Receivable
Yield Considerations".
People's Bank may, at its option, reduce the minimum payment
requirements and monthly periodic finance charges described above for the
accounts of cardholder who are members of Consumer Credit Counseling Services,
an organization which assists financially troubled cardholder with outstanding
credit card balances to devise a
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repayment program. Such repayment program generally involves reducing the
minimum monthly payment and/or reducing the finance charges assessed. People's
Bank may, but is not obligated to, accept such repayment program.
People's Bank generally assesses a non-refundable annual membership fee
of $25 for standard accounts, $30 for business accounts and $40 for premium
accounts. In response to market trends commencing in 1995, People's Bank
originated a proportionately larger amount of credit card accounts that did not
require payment of an annual membership fee. In addition, People's Bank may
waive the annual membership fee, or a portion thereof, in connection with
certain solicitations, affinity programs and in certain other cases. Some of the
accounts may be subject to certain additional fees, including: (i) a late fee,
generally in the amount of $20, with respect to any monthly payment if the
required minimum monthly payment is not received by the payment due date shown
on the monthly billing statement; (ii) a cash advance fee equal to 2% of the
amount of each cash advance (minimum $3; maximum $25) applied per transaction at
ATMs, People's Bank or any other bank; (iii) an overlimit fee, generally in the
amount of $20; and (iv) a returned check fee, generally in the amount of $20.
Subject to the requirements of applicable laws, People's Bank may change certain
of these fees and rates at any time by written notice to cardholder. Pursuant to
the terms of the cardholder agreement, People's Bank may change the terms of
such agreement and must give cardholder 15 days prior notice of any change which
would result in an increase in the rate of finance charges on existing balances
or new activity, or other fees, or impose a fee not set forth in such agreement.
Payments on People's Bank accounts are generally applied, in the
following order, to: finance charges, promotional balance transfers, the balance
of cash advances previously billed, the balance of new cash advances,
convenience checks, the balance of purchases previously billed, and the balance
of new purchases.
There can be no assurance that periodic finance charges, fees, and other
charges imposed by People's Bank will remain at current levels in the future, or
that the order of application of payments made on People's Bank's accounts will
remain as described above. See "Risk Factors--Consumer Protection Laws".
Collection of Delinquent Accounts. An account is initially considered
delinquent if the minimum monthly payment indicated on the accountholder's
statement is not received within one calendar month from the statement date.
Efforts to collect delinquent credit card receivables are made by People's
Bank's personnel and collection agencies and attorneys retained by People's
Bank. Under current practice, accountholders that become one to ten days
delinquent are sent a notice on the billing statement and telephone calls to the
accountholder begin once an account becomes delinquent. People's Bank uses an
automated dialer to telephone delinquent accountholders. People's Bank also uses
the on-line collections system of Total System and a Fair, Isaac Companies
scoring system to analyze the collection risk on such accounts.
Generally, within 31 days of contractual delinquency, no additional
extensions of credit through such account are authorized and, at 61 days of
contractual delinquency, the account is closed. Consistent with the credit and
collection policies of People's Bank, in certain infrequent circumstances,
People's Bank may enter into arrangements with cardholder to extend or otherwise
change payment schedules, which can include the suspension of finance charge
accruals or bringing current (or "reaging") accounts where cardholder make three
consecutive minimum monthly payments. People's Bank will enter into such
arrangements only in circumstances where it believes its ability to collect on
the account will be enhanced by such arrangements.
The current policy of People's Bank is to charge-off, as a loan loss,
the principal portion of the receivables balance for both purchases and cash
advances at any time after the 210th through the 240th day of delinquency.
Charge-offs may occur earlier in some circumstances, as in the case of bankrupt
cardholder. At the time an account is charged off, an evaluation of its
collectibility is made on a case by case basis to determine whether further
remedies should be pursued by collection personnel at People's Bank, outside
collection agencies or, in some cases, outside attorneys. Delinquency levels are
monitored by collection managers and information is reported regularly
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to senior management. Under the terms of the Agreement, any Recoveries will be
included in the assets of the Trust and considered Finance Charge Receivables.
Loss and Delinquency Experience
The following tables set forth the delinquency and loss experience for
each of the periods shown for receivables in accounts which would have
substantially satisfied the criteria for inclusion of its related receivables in
the Trust Portfolio (the "Representative Portfolio") set forth in the Agreement
as applied on each date listed in the tables below. The Servicer will file with
the Commission monthly reports with respect to the Trust, including information
with respect to revenues, losses and Portfolio Yield with respect to the
Accounts. There can be no assurance that the delinquency and loss experience for
the Receivables in the future will be similar to the historical experience of
the Representative Portfolio included in the tables set forth below because,
among other things, economic and financial conditions affecting the ability of
cardholder to pay may be different from those which prevailed during the periods
reflected below.
Loss Experience
Representative Portfolio
(Dollars in Thousands)
Year Ended December 31,
1996 1995 1994
------ ------ -----
Average Receivables
Outstanding(1).................... $2,108,835 $1,649,780 $1,182,028
Gross Charge-Offs(2)(3)............. 99,533 56,101 27,858
Recoveries.......................... 8,327 5,175 3,875
Net Charge-Offs(3).................. 91,206 50,926 23,982
Net Charge-Offs as Percentage
of Average Receivables
Outstanding(3)...................... 4.32% 3.09% 2.03%
- -----------------------------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Gross Charge-Offs are calculated before Recoveries and do not include the
amount of any reductions in Average Receivables Outstanding due to fraud.
(3) The amounts of charge-offs include the principal and interest portion of
charged off receivables.
<TABLE>
<CAPTION>
Delinquency Experience
Representative Portfolio
(Dollars in Thousands)
As of December 31,
--------------------------------------------------
1996 1995 1994
------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Number of Days Delinquent
Delinquent(1) Amount Percentage Amount Percentage Amount Percentage
31 to 60 days........... $30,477 1.40% $23,227 1.27% $13,888 0.92%
61 to 90 days........... 19,514 0.90 13,292 0.73 7,476 0.50
91 to 120 days.......... 15,216 0.70 11,397 0.62 5,178 0.34
121 to 150 days......... 12,650 0.58 9,032 0.49 4,069 0.27
151 to 180 days......... 9,808 0.45 7,384 0.40 3,124 0.21
181 days or greater..... 14,665 0.68 10,613 0.58 4,498 0.30
------ ---- ------ ---- ----- ----
Total(2).............. $102,330 4.71% $74,945 4.09% $38,233 2.54%
======== ==== ======= ==== ======= ====
</TABLE>
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- -----------------------------
(1) Number of days delinquent means the number of days after the billing date
next following the original billing date. For example, 31 days delinquent
means that no payment is received within 61 days after the original billing
date.
(2) Delinquencies are calculated as a percentage of outstanding receivables as
of the end of each calendar month. Delinquencies include bankruptcies.
[The rise in delinquencies and charge-offs as a percentage of the
Representative Portfolio in 1995 and in 1996 are the result of a variety of
factors. Among them are: (i) the reduction in the rate of growth in the
Receivables in the Representative Portfolio in calendar year 1995 as compared to
the rate of growth in the Receivables in the Representative Portfolio that
occurred in 1994 (the rate of delinquency on new accounts typically being below
the rate of delinquency on seasoned accounts); (ii) general economic conditions
in the United States and particularly the nationwide rise in consumer loan
delinquencies and the rise in personal bankruptcy filings; and (iii) the
creation and inclusion in the Representative Portfolio of a new product group
that generated higher revenues and higher losses. This new product group
represented approximately $119 million of receivables as of March 31, 1996.
People's Bank will not add additional receivables of this type to the Trust
without rating agency approval.
To the extent that average receivables outstanding do not continue to
rise at the same rate as they did in 1994, and to the extent that the rate of
account seasoning does not remain the same, there can be no assurance that the
loss and delinquency amounts as a percentage of the Representative Portfolio
will remain at current levels.]
People's Bank believes that conformity with its underwriting procedures
(see "--Underwriting Procedures") will keep the loss and delinquency experience
within historical norms.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard systems, a portion of these fees collected in
connection with cardholder charges for merchandise and services is passed from
the banks clearing the transactions for merchants to credit card issuing banks.
These fees currently range from approximately [0.90% to 2.18%] of the
transaction amount. People's Bank is required, pursuant to the terms of the
Agreement, to transfer to the Trust those fees attributed to cardholder charges
for merchandise and services in the Accounts ("Interchange"). Such percentages
are set by the VISA and MasterCard associations and may be changed by either of
them respectively from time to time. Interchange is treated as Finance Charge
Receivables for the purposes of determining the amount of Finance Charge
Receivables, allocating collections and payments to Certificateholders and
calculating the Portfolio Yield.
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts from the Bank
Portfolio of VISA and MasterCard credit card accounts satisfying eligibility
criteria set forth in the Agreement (the "Trust Portfolio"). Such criteria do
not create a selection adverse to the Certificateholders. Pursuant to the
Agreement, the Transferor has the right (and, under certain circumstances, the
obligation), subject to certain limitations and conditions set forth therein, to
designate from time to time Additional Accounts and to transfer to the Trust all
Receivables of such Additional Accounts, whether such Receivables are then
existing or thereafter created. Any Additional Accounts designated pursuant to
the Agreement must be Eligible Additional Accounts as of the date the Transferor
designates such accounts as Additional Accounts. The Agreement also provides
that the Transferor will add as Automatic Additional Accounts certain new
accounts opened in the ordinary course of its business. Automatic Additional
Accounts will be added to the Trust on the business day that they are originated
if certain requirements are satisfied. See "Description of the
Certificates--Addition of Accounts". Automatic Additional Accounts will consist
of certain of
18
<PAGE>
the Transferor's VISA and MasterCard credit card accounts, constituting Eligible
Automatic Additional Accounts and satisfying certain other criteria, and arising
in Accounts designated by the Transferor from time to time. The Transferor may
designate additional categories of Automatic Additional Accounts; provided,
however, that the Transferor shall have received notice from each Rating Agency
that such designation will not result in a downgrading or withdrawal of its
rating of any certificates of any Series outstanding. In addition, the
Transferor is required to designate Eligible Additional Accounts as Additional
Accounts (x) to maintain the Transferor Interest such that on any Record Date
the Transferor Interest for the related Monthly Period equals or exceeds 7% or
such higher percentage as may be stated in any Supplement (such percentage, the
"Minimum Transferor Interest") of the average Aggregate Principal Receivables
and (y) to maintain, for so long as certificates of any Series, including the
Certificates, remain outstanding, Aggregate Principal Receivables in an amount
equal to or greater than the Minimum Aggregate Principal Receivables. The term
"Aggregate Principal Receivables" means in the case of any date of
determination, the sum of (i) the aggregate amount of Principal Receivables and
(ii) the amount on deposit in the Excess Funding Account (exclusive of the
amount of any investment earnings thereon), in each case, as of the end of the
last day of the Monthly Period immediately preceding such date of determination.
The "Minimum Aggregate Principal Receivables" required to be maintained through
the designation by the Transferor of Additional Accounts shall generally be an
amount equal to the sum of the numerators used to calculate the Investor
Percentage with respect to Principal Receivables for each Series. Such amount
may be increased by a Supplement pursuant to which additional Series may be
issued. The Transferor will convey the Receivables then existing or thereafter
created under such Additional Accounts to the Trust. See "Description of the
Certificates--Addition of Accounts". Further, pursuant to the Agreement, the
Transferor has the right (subject to certain limitations and conditions
discussed herein) to remove certain Accounts designated by the Transferor
whether such Receivables are then existing or thereafter created. See
"Description of Certificates--Removal of Accounts". Throughout the term of the
Trust, the Accounts from which the Receivables arise will be the same credit
card accounts designated as Accounts by the Transferor plus any Additional
Accounts and Automatic Additional Accounts and minus any Removed Accounts. As of
each date an Account is added, and on any date Additional Accounts or Automatic
Additional Accounts are added, to the Trust, and on the date any new Receivables
are created or are added to the Trust, as applicable, the Transferor will (or
will be deemed to) represent and warrant to the Trust that the Receivables meet
the eligibility requirements specified in the Agreement. See "Description of the
Certificates--Representations and Warranties".
Some of the Accounts are recently solicited, unseasoned accounts and the
Receivables include Receivables that may be up to 240 days contractually
delinquent. Because the Accounts were selected as of the Series Cut-Off Date,
there can be no assurance that all of the accounts will continue to meet the
eligibility requirements during the life of the Trust. The Receivables in the
Accounts are the unsecured obligations of the cardholder.
The Receivables in the Trust Portfolio as of the Series Cut-Off Date
totalled approximately $2,174,315,242. The Accounts had, as of the December 1996
Monthly Period, an average outstanding balance of $1,611 and an average credit
limit of $5,393. The percentage of the aggregate total Receivables balance to
the aggregate total credit limit was 29.87%, and the weighted average age of the
Accounts was approximately 35.11 months. As of the December 1996 Monthly Period,
cardholder whose Accounts giving rise to the Receivables are included in the
Trust Portfolio have billing addresses in all 50 States and the District of
Columbia.
The following tables summarize the Trust Portfolio's balance and account
characteristics of the accounts giving rise to the Receivables as of the close
of the December 1996 Monthly Period for each of the Accounts. Because the future
composition of the Trust Portfolio may change over time, these tables may not
necessarily be indicative of the composition of the Trust Portfolio after the
December 1996 Monthly Period.
19
<PAGE>
<TABLE>
Composition by Account Balance
Trust Portfolio
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number Receivables
Account Balance Range Accounts of Accounts Receivables Balance Balance
- --------------------- -------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Credit Balance............ 23,608 1.75% $ (2,338,352.86) (0.11)%
Zero Balance.............. 475,463 35.22 0.00 0.00
$0.01-$500.00............. 167,263 12.39 32,059,607.74 1.47
$500.01-$1,000.00......... 91,524 6.78 68,320,030.42 3.14
$1,000.01-$3,000.00....... 268,079 19.86 529,653,872.47 24.36
$3,000.01-$5,000.00....... 211,931 15.70 833,181,636.29 38.33
$5,000.01-$10,000.00...... 109,623 8.12 685,282,359.98 31.52
Over $10,000.00........... 2,376 0.18 28,156,087.62 1.29
---------- ------- ------------------ -------
Total................... 1,349,867 100.00% $2,174,315,241.66 100.00%
========== ====== ================== =======
</TABLE>
<TABLE>
Composition by Credit Limit
Trust Portfolio
Percentage
<CAPTION>
Percentage of of Total
Number of Total Number Receivables
Credit Limit Range Accounts of Accounts Receivables Balance Balance
- ------------------ -------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
$0.01-$1,000.00........... 50,587 3.75% $ 13,688,605.73 0.63%
$1,000.01-$2,000.00....... 71,932 5.33 48,383,538.53 2.23
$2,000.01-$3,000.00....... 107,004 7.93 109,217,851.22 5.02
$3,000.01-$4,000.00....... 136,363 10.10 179,441,762.88 8.25
$4,000.01-$5,000.00....... 239,347 17.73 398,642,835.14 18.33
$5,000.01-$10,000.00...... 708,821 52.51 1,339,793,850.85 61.62
Over $10,000.00........... 35,813 2.65 85,146,797.31 3.92
--------- ------ ----------------- ------
Total................... 1,349,867 100.00% $2,174,315,241.66 100.00%
========= ====== ================= ======
</TABLE>
<TABLE>
Composition by Period of Delinquency
Trust Portfolio
<CAPTION>
Period of Delinquency Percentage
(Days Contractually Percentage of of Total
Delinquent) Number of Total Number Receivables
- --------------------- Accounts of Accounts Receivables Balance Balance
-------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Current................... 1,275,987 94.53% $ 1,949,023,112.04 89.64%
1-30 Days................. 42,790 3.17 122,962,270.13 5.66
31-60 Days................ 10,135 0.75 30,476,975.96 1.40
61 or More Days........... 20,955 1.55 71,852,883.53 3.30
--------- ------ ----------------- -------
Total................... 1,349,867 100.00% $2,174,315,241.66 100.00%
========= ====== ================= =======
</TABLE>
20
<PAGE>
<TABLE>
Composition by Account Age
Trust Portfolio
<CAPTION>
Percentage
Percentage of of Total
Account Age Number of Total Number Receivables
- ----------- Accounts of Accounts Receivables Balance Balance
-------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
0 to 6 Months............. 45,803 3.39% $ 63,392,957.57 2.92%
Over 6 to 12 Months....... 327,238 24.24 544,151,092.93 25.03
Over 12 to 24 Months...... 267,556 19.82 437,364,327.14 20.12
Over 24 to 48 Months...... 434,418 32.19 706,012,719.12 32.46
Over 48 Months............ 274,852 20.36 423,394,144.90 19.47
----------- ------- ----------------- ------
Total................... 1,349,867 100.00% $2,174,315,241.66 100.00%
=========== ======= ================= ======
</TABLE>
<TABLE>
Geographic Distribution
Trust Portfolio
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number Receivables
Accounts of Accounts Receivables Balance Balance
-------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Connecticut.............. 183,740 13.61% $ 296,649,899.00 13.64%
California............... 116,838 8.66 198,723,670.00 9.14
Texas.................... 89,538 6.63 159,653,397.00 7.34
New York................. 82,290 6.10 127,462,691.00 5.86
Florida.................. 64,544 4.78 98,684,037.00 4.54
Ohio..................... 52,145 3.86 87,740,627.00 4.04
Illinois................. 54,665 4.05 84,291,064.00 3.88
Pennsylvania............. 55,184 4.09 80,535,374.00 3.70
Michigan................. 42,812 3.17 70,401,804.00 3.24
New Jersey............... 43,697 3.24 66,685,250.00 3.07
Other(1)................. 564,414 41.81 903,487,428.66 41.55
----------- ------- ------------------ ------
Total.................. $ 1,349,867 100.00% $2,174,315,241.66 100.00%
=========== ======= ================= ======
(1) States with less than 3.07% of the Percentage of Total Receivables Balance.
21
</TABLE>
<PAGE>
[People's Bank to Update as Necessary] The largest concentration of Accounts
giving rise to Receivables in the Trust Portfolio is in Connecticut.
Connecticut's economy has historically been highly dependent on the defense
industry, which recently has been adversely affected by cutbacks in federal
spending. During the past several years, Connecticut has been adversely impacted
by employment losses more severe in Connecticut than in the United States as a
whole. See "Risk Factors--Social, Technological and Economic Factors".
MATURITY CONSIDERATIONS
The Agreement provides that the Class A Certificateholders and the Class
B Certificateholders will not receive principal payments until the Class A
Scheduled Payment Date and the Class B Scheduled Payment Date, respectively,
except in the event of a Pay Out Event, which will result in the commencement of
the Rapid Amortization Period. A "Pay Out Event" occurs, either automatically or
after specified notice, upon (a) the failure of the Transferor to make certain
payments or transfers of funds for the benefit of the Certificateholders within
the time periods stated in the Agreement, (b) material breaches of certain
representations, warranties or covenants of the Transferor, (c) certain
insolvency events involving the Transferor, (d) the occurrence of a Servicer
Default which would have a material adverse effect on the Certificateholders,
(e) the failure of the Transferor to convey Receivables arising under Additional
Accounts when required by the Agreement, (f) the Trust becoming subject to
regulation as an "investment company" by the Commission within the meaning of
the Investment Company Act of 1940, as amended, (g) a reduction in the Portfolio
Yield averaged for any three consecutive Monthly Periods to a rate which is less
than the Base Rate, (h) the failure to pay each class of Offered Certificates in
full on or prior to its applicable Scheduled Payment Date or (i) the failure of
the Interest Rate Cap Provider to make any payment under the Interest Rate Caps
within five days of the date such payment was due. See "Description of the
Certificates--Pay Out Events".
Controlled Accumulation Period. On each Transfer Date beginning with the
Transfer Date following the Monthly Period in which the Controlled Accumulation
Period commences, an amount equal to the least of (a) the Available Investor
Principal Collections with respect to the related Monthly Period, (b) the
"Controlled Deposit Amount", which is equal to the sum of the Controlled
Accumulation Amount for the related Monthly Period and the Accumulation
Shortfall, if any, for such Monthly Period, and (c) the Class A Adjusted
Investor Interest on such Transfer Date will be deposited in the Principal
Funding Account until the amount on deposit in the Principal Funding Account
(the "Principal Funding Account Balance") equals the Class A Investor Interest.
Amounts deposited in the Principal Funding Account will be deposited in the
Distribution Account for distribution to the Class A Certificateholders on the
Class A Scheduled Payment Date. On the Transfer Date during the Controlled
Accumulation Period immediately following the Distribution Date on which the
Class A Investor Interest has been paid in full, an amount equal to the lesser
of (a) the Available Investor Principal Collections for the related Monthly
Period and (b) the Class B Investor Interest will be deposited into the
Distribution Account for distribution to the Class B Certificateholders on the
Class B Scheduled Payment Date. If, for any Monthly Period prior to the payment
in full of the Class A Investor Interest and the Class B Investor Interest, the
Available Investor Principal Collections for such Monthly Period exceed the
applicable Controlled Deposit Amount, any such excess will be first paid to the
Collateral Interest Holder to the extent that the Collateral Interest exceeds
the Required Collateral Interest and then treated as Shared Principal
Collections and allocated to the holders of other Series of certificates issued
and outstanding or, subject to certain limitations described herein (to the
extent that the Transferor Interest exceeds the Minimum Transferor Interest),
paid to the holder of the Exchangeable Transferor Certificate. After the Class A
Investor Interest and the Class B Investor Interest have each been paid in full,
the remaining Available Investor Principal Collections, to the extent required,
will be distributed to the Collateral Interest Holder on each related Transfer
Date until the earliest of the date the Collateral Interest has been paid in
full, the Scheduled Series 1997-1 Termination Date and the termination of the
Trust.
Amounts in the Principal Funding Account are expected to be available to
pay the Class A Investor Interest in full on the Class A Scheduled Payment Date.
Available Investor Principal Collections are expected to be
22
<PAGE>
available to pay the Class B Investor Interest in full on the Class B Scheduled
Payment Date. Although it is anticipated that Available Investor Principal
Collections with respect to each Monthly Period during the Controlled
Accumulation Period will be available on the related Transfer Date to make a
deposit of the Controlled Deposit Amount to the Principal Funding Account and
that the Class A Investor Interest will be paid to the Class A
Certificateholders on the Class A Scheduled Payment Date and the Class B
Investor Interest will be paid to the Class B Certificateholders on the Class B
Scheduled Payment Date, respectively, no assurance can be given in this regard.
If the amount required to pay the Class A Investor Interest or the Class B
Investor Interest in full is not available on the Class A Scheduled Payment Date
or the Class B Scheduled Payment Date, respectively, a Pay Out Event will occur
and the Rapid Amortization Period will commence.
"Controlled Accumulation Amount" means (a) for any Transfer Date with
respect to the Controlled Accumulation Period, prior to the payment in full of
the Class A Investor Interest, $[ ]; provided, however, that if the commencement
of the Controlled Accumulation Period is delayed as described below under
"Description of the Certificates -- Postponement of Controlled Accumulation
Period," the Controlled Accumulation Amount may be higher than the amount stated
above for each Transfer Date with respect to the Controlled Accumulation Period
and will be determined by the Servicer in accordance with the Series 1997-1
Supplement based on the principal payment rates for the Accounts and on the
investor interests of other Series (other than certain excluded Series) which
are scheduled to be in their revolving periods and scheduled to create Shared
Principal Collections during the Controlled Accumulation Period and (b) for any
Transfer Date with respect to the Controlled Accumulation Period after the
payment in full of the Class A Investor Interest, an amount equal to the Class B
Investor Interest on such Transfer Date.
"Accumulation Shortfall" means (a) on the first Transfer Date with
respect to the Controlled Accumulation Period, the excess, if any, of the
Controlled Accumulation Amount for such Transfer Date over the amount deposited
in the Principal Funding Account as Class A Monthly Principal for such Transfer
Date and (b) on each subsequent Transfer Date with respect to the Controlled
Accumulation Period, the excess, if any, of the applicable Controlled
Accumulation Amount for such subsequent Transfer Date plus any Accumulation
Shortfall for the prior Transfer Date over the amount deposited in the Principal
Funding Account as Class A Monthly Principal for such subsequent Transfer Date.
Should the Rapid Amortization Period commence, the Certificateholders
will be entitled to receive monthly payments as provided herein of principal on
each Distribution Date (beginning with the Distribution Date in the month
following the month in which the Rapid Amortization Period commences) equal to
the product of the applicable Investor Percentage and Principal Collections
received during the related Monthly Period (less the amount of Reallocated
Principal Collections with respect to such Monthly Period used to fund the
Required Amounts), plus certain amounts treated as Principal Collections with
respect to such Monthly Period (including amounts applied with respect to
Investor Default Amounts and Investor Charge-Offs), plus the amount of Shared
Principal Collections, if any, allocable to the Certificates with respect to
such Monthly Period (collectively, the "Available Investor Principal
Collections"). Allocations based upon the applicable Fixed Investor Percentage
may result in deposits to the Principal Funding Account during the Controlled
Accumulation Period or distributions of principal to Certificateholders during
the Rapid Amortization Period greater, relative to the declining balance of the
Investor Interest, than would be the case if a percentage based on such
declining balance were used to determine the percentage of Collections to be
deposited or distributed, as the case may be, in respect of the Investor
Interest. See "Description of the Certificates--Allocation Percentages".
A significant decline in the amount of Receivables generated during the
Revolving Period could result in the occurrence of a Pay Out Event for the
Certificateholders and the commencement of the Rapid Amortization Period, thus
shortening the maturity of the Certificates. Conversely, a significant decline
in the amount of Receivables generated during the Controlled Accumulation Period
or the Rapid Amortization Period could result in an extension of the final
payment of the Certificates. If the maturity of the Certificates has been
shortened at a time when interest rates generally available are lower than the
Certificate Rates, the yield to maturity realized by
23
<PAGE>
the Certificateholders upon reinvestment at the lower prevailing interest rates
may be lower than if the Certificates remained outstanding until the expected
maturity. Conversely, if the maturity of the Certificates is extended at a time
when interest rates generally available are higher than the Certificate Rates,
the yield to maturity realized by the Certificateholders may be lower than if
the Certificates had matured when expected and the Certificateholders had
reinvested at the higher prevailing interest rates.
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Representative Portfolio during any month in the period
shown and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of the prior month's
ending outstanding receivables balance during the periods shown. Payment rates
shown in the table are based on amounts which would be deemed payments of
Principal Receivables and Finance Charge Receivables with respect to the
Accounts.
24
<PAGE>
Cardholder Monthly Payment Rates(1)
Representative Portfolio
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Lowest....................... 9.30% 9.12% 9.82%
Highest...................... 11.21 11.19 13.02
Average(2)................... 10.43 10.03 11.08
(1) Monthly payment rates represent total payments collected during a given
month expressed as a percentage of the prior month's ending outstanding
receivables.
(2) The average monthly payment rates shown are expressed as an arithmetic
average of the payment rate during each month of the period indicated.
The amount of Collections may vary from month to month due to seasonal
variations, general economic conditions and payment habits of individual
cardholder. There can be no assurance that Principal Collections with respect to
the Trust Portfolio, and thus the rate at which Certificateholders could expect
to receive payments of principal on the Certificates during either the
Controlled Accumulation Period or the Rapid Amortization Period, will be similar
to the historical experience set forth above. In addition, if a Pay Out Event
occurs, the average life and maturity of the Certificates could be significantly
reduced.
Because there may be a slowdown in the payment rate below the payment
rate used to determine the Controlled Accumulation Amounts, or because a Pay Out
Event may occur which would initiate the Rapid Amortization Period, there can be
no assurance that the Class A Investor Interest will be paid to the Class A
Certificateholders on the Class A Scheduled Payment Date and the Class B
Investor Interest will be paid to the Class B Certificateholders on the Class B
Scheduled Payment Date. As described under "Description of the
Certificates--Postponement of Controlled Accumulation Period," the Servicer may
shorten the Controlled Accumulation Period and, in such event, there can be no
assurance that there will be sufficient time to accumulate all amounts necessary
to pay the Class A Investor Interest and the Class B Investor Interest on the
Class A Scheduled Payment Date and the Class B Scheduled Payment Date,
respectively.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in
the Representative Portfolio for each of the three years ended December 31,
1996, 1995 and 1994 are set forth in the following table. The historical yield
figures in the table are calculated on a billed basis, net of rebated fees and
other charges. Collections of Receivables included in the Trust are on a cash
basis and may not reflect the historical yield experience in the table. During
periods of increasing delinquencies or periodic payment deferral programs,
accrual yields may exceed cash yields as amounts collected on credit card
receivables lag behind amounts accrued and billed to cardholder. Conversely, as
delinquencies decrease, cash yields may exceed accrual yields as amounts
collected in a current period may include amounts accrued during prior periods.
The Transferor believes, however, that during the periods shown, the yields
presented on an accrual basis closely approximated the yields on a cash basis.
The yield on both an accrual and a cash basis will be affected by numerous
factors, including the monthly periodic finance charges on the Receivables, the
amount of the annual membership fees and cash advance fees, Interchange, changes
in the delinquency rate on the Receivables and the percentage of cardholder who
pay their balances in full each month and do not incur monthly periodic finance
charges.
25
<PAGE>
Revenue Experience
Representative Portfolio
(Dollars in Thousands)
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Finance Charges and Fees
Billed(1)..................... $328,227 $263,555 $182,657
Average Receivables
Outstanding(2)................ $2,108,835 $1,649,780 $1,182,028
Yield from Finance Charges
and Fees Billed(3)(4)......... 15.56% 15.98% 15.45%
(1) Finance Charges and Fees Billed include periodic finance charges, annual
membership fees, late fees, returned check fees, overlimit fees, the
premium of any insurance covering a cardholder's account balances, cash
advance transaction fees, interchange and recoveries allocable to the
related receivables. The annual membership fees, as presented, reflect full
recognition upon billing.
(2) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(3) Yield from Finance Charges and Fees Billed is calculated as a percentage of
the Average Receivables Outstanding.
(4) Finance Charges and Fees Billed in 1994 do not include interchange fees
collected on certain accounts that are included in this Representative
Portfolio. The Transferor does not believe that the effect on Yield from
Finance Charges and Fees Billed resulting from such exclusion is material.
As payment rates decline, the balances subject to monthly periodic
finance charges tend to grow, assuming no change in the level of purchasing
activity. Accordingly, under these circumstances, the yield related to periodic
finance charges normally increases. As account balances increase, annual
membership fees, which remain constant, represent a smaller percentage of the
aggregate account balance. See "The Credit Card Business of People's Bank".
USE OF PROCEEDS
The net proceeds from the sale of the Offered Certificates,
approximately $ , before deduction of expenses, will be paid to PSFC, other than
$_________ thereof, which will be deposited in the Finance Charge Account for
the payment of interest on the Certificates with respect to the first
Distribution Date. PSFC intends to distribute substantially all of the remaining
proceeds to the Transferor through the declaration and payment of a dividend
and/or a distribution of capital to the Transferor, and the Transferor will use
such proceeds for its general corporate purposes.
PEOPLE'S BANK
People's Bank was formed in 1842 and is headquartered in Bridgeport,
Connecticut. People's Bank is a majority-owned subsidiary of People's Mutual
Holdings, which as of December 31, 1996 owns 59.9% of the issued and outstanding
common stock of People's Bank. People's Bank is chartered as a Connecticut stock
savings bank, and, as a state chartered non-member bank, is regulated by the
State of Connecticut Department of Banking and by the FDIC. People's Bank is the
largest independent bank in Connecticut, with total assets at approximately $7.6
billion, total liabilities at approximately $7.0 billion, and total
stockholders' equity at approximately $618 million
26
<PAGE>
as of December 31, 1996. At December 31, 1996, People's Bank's Tier 1 leverage
capital ratio was 7.9%, satisfying the minimum ratio of 4.0% to 5.0% generally
required by the FDIC. People's Bank is also subject to the FDIC's risk-based
capital regulations, which require minimum ratios of Tier 1 capital and total
capital to risk- weighted assets of 4.0% and 8.0%, respectively. People's Bank
satisfied these requirements at December 31, 1996 with ratios of 10.0% and
13.9%, respectively. People's Bank regulatory capital ratios at December 31,
1996, exceed the FDIC's numeric criteria for classification as a
"well-capitalized" institution. People's Bank's lending activities consist of
originating loans secured by residential and commercial properties, and
extending secured and unsecured consumer and commercial loans.
People's Structured Finance Corp. ("PSFC"), which is currently the
Holder of the Exchangeable Transferor Certificate, is a wholly-owned special
purpose Connecticut subsidiary of People's Bank. In establishing PSFC, People's
Bank has taken steps to ensure that PSFC is a bankruptcy-remote corporation,
which steps include (but are not limited to) (a) the appointment of two
independent directors to PSFC's board of directors, (b) the creation of PSFC as
a special purpose subsidiary of People's Bank pursuant to a certificate of
incorporation containing certain limitations (including restrictions on the
nature of PSFC's business and restrictions on PSFC's ability to commence a
voluntary case or proceeding under the United States Bankruptcy Code or similar
state laws without the prior unanimous affirmative vote of all of its directors,
including the prior unanimous affirmative vote of both of its independent
directors), and (c) the maintenance by PSFC of separate bank accounts, corporate
records and books of account. The Exchangeable Transferor Certificate,
representing the Transferor Interest in the Trust, was transferred to PSFC
pursuant to an Assignment and Assumption Agreement, dated as of December 15,
1995, by and between People's Bank and PSFC.
DESCRIPTION OF THE CERTIFICATES
The Offered Certificates will be issued pursuant to the Agreement,
including the Series 1997-1 Supplement, entered into between People's Bank, as
Transferor of the Certificates and as Servicer of the Accounts and the
Receivables, and Bankers Trust Company, as Trustee for the certificateholders
and the holders of other undivided interests in the Trust, substantially in the
form filed as exhibits to the Registration Statement of which this Prospectus is
a part. Pursuant to the Agreement, the Transferor has executed five Supplements,
four of which are currently outstanding in connection with the issuance of other
Series of certificates and may execute further Supplements thereto between the
Transferor and the Trustee in order to issue additional Series. See
"--Exchanges". The Trustee will provide a copy of the Agreement (without
exhibits or schedules), including each Supplement, to certificateholders without
charge upon written request. The following summary describes certain terms of
the Agreement (including the Series 1997-1 Supplement) and is qualified in its
entirety by reference to the Agreement (including the Series 1997-1 Supplement).
General
The Certificates will represent a fractional undivided interest in
certain assets of the Trust, including the right to receive the Collections
received with respect to the Receivables in the Trust allocable to the
Certificates and, with respect to the Offered Certificates, the benefit of the
Interest Rate Caps. The property of the Trust consists of the Receivables, all
monies due or to become due thereunder, all proceeds of the Receivables,
Interchange, Recoveries, all monies on deposit in the Collection Account and the
Excess Funding Account, funds on deposit in accounts established pursuant to the
Series 1997-1 Supplement, funds on deposit in any Series accounts established
for the benefit of certificateholders other than the Certificateholders pursuant
to the related Supplement, funds on deposit and securities held in the Reserve
Account for the benefit of the Class A Certificateholders, the benefit of the
Interest Rate Caps, the Collateral Interest and any other Enhancement issued
with respect to any additional Series (the drawing on, withdrawal from or
payment on such Enhancement, and the funds on deposit in any Series account with
respect to any additional Series, will not be available to Certificateholders).
The Trust will include the Receivables from Additional Accounts and Automatic
Additional Accounts which may be added from
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time to time pursuant to the terms of the Agreement and will not include the
Receivables from any Removed Accounts which may be removed from the Trust from
time to time pursuant to the terms of the Agreement.
Payments of interest and principal will be made on each related
Distribution Date to Offered Certificateholders in whose names the Offered
Certificates were registered as of (i) the business day preceding the
Distribution Date with respect to book-entry Offered Certificates and (ii) the
last day of the calendar month preceding such Distribution Date with respect to
Definitive Certificates (each, a "Record Date"), and to the Collateral Interest
Holder. Interest will be distributed to Certificateholders on the fifteenth day
of each month (or, if such day is not a business day, on the next succeeding
business day) (each, a "Distribution Date"), commencing May 15, 1997. Monthly
Interest on the Class A Certificates and the Class B Certificates will be
distributed to each Offered Certificateholder in an amount equal to the sum of
(v) the product of (a) the applicable Offered Certificate Rate, (b) the actual
number of days in the related Interest Period or Initial Interest Period divided
by 360 and (c) the lesser of the Class A Adjusted Investor Interest or the Class
B Investor Interest, as the case may be, as of the preceding Distribution Date
(or, in the case of the first Distribution Date, the Class A Initial Investor
Interest or the Class B Initial Investor Interest, as the case may be), after
giving effect to all payments, deposits and withdrawals on such Distribution
Date, and the Expected Class A Principal or the Expected Class B Principal, as
the case may be, as of the preceding Distribution Date, plus (w) with respect to
the Class A Certificates, the Class A Covered Amount for the related Interest
Period, plus (x) the product of (a) the Class A Excess Principal or the Class B
Excess Principal, as the case may be, (b) the lesser of the applicable Offered
Certificate Rate and either % for the Class A Certificates or % for the Class B
Certificates, and (c) the actual number of days in the related Interest Period
divided by 360, plus (y) to the extent permitted by applicable law, any interest
accrued on such Offered Certificates (including interest on any overdue Class A
Monthly Interest or Class B Monthly Interest, as the case may be) during any
prior accrual period which has not been distributed to Offered
Certificateholders, plus (z) to the extent that there is available Excess
Spread, any Class A Excess Interest or any Class B Excess Interest, as the case
may be. Class A Monthly Interest and Class B Monthly Interest will accrue from
and including the Distribution Date occurring in the preceding month (in the
case of the first Distribution Date, from and including the Closing Date) to and
including the day preceding the current Distribution Date. Interest payments on
the Offered Certificates will be derived from Finance Charge Collections,
amounts paid under the Interest Rate Caps, Principal Collections otherwise
allocable to the Collateral Interest and, for the Class A Certificateholders,
withdrawals from the Reserve Account and Principal Collections otherwise
allocable to the Class B Certificates. Allocations of Finance Charge Collections
with respect to any Distribution Date will not exceed the product of the
Investor Percentage with respect to Finance Charge Receivables and such
Collections.
Each of the Class A Certificates and the Class B Certificates will
initially be represented by Offered Certificates registered in the name of the
nominee of DTC (together with any successor depository selected by the
Transferor, the "Depository") except as set forth below. The Offered
Certificates will be available for purchase in minimum denominations of $1,000
and integral multiples thereof in book-entry form. The Transferor has been
informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is expected
to be the holder of record of the Offered Certificates. No Offered Certificate
Owner acquiring an interest in the Offered Certificates will be entitled to
receive a certificate representing such person's interest in the Offered
Certificates. Unless and until Definitive Certificates are issued under the
limited circumstances described herein, all references herein to actions by
Offered Certificateholders shall refer to actions taken by DTC upon instructions
from its Participants (as defined below), and all references herein to
distributions, notices, reports and statements to Offered Certificateholders
shall refer to distributions, notices, reports and statements to DTC or Cede, as
the registered holder of the Offered Certificates, as the case may be, for
distribution to Offered Certificate Owners in accordance with DTC procedures.
See "--Book-Entry Registration" and "--Definitive Certificates".
Application will be made to list the Class A Certificates on the
Luxembourg Stock Exchange.
In the event that Definitive Certificates are issued, a Certificate that
is mutilated, destroyed, lost or stolen may be exchanged or replaced, as the
case may be, at the offices of the Transfer Agent and Registrar or, in the case
of the Class A Certificates, the co-transfer agent and co-registrar in
Luxembourg upon presentation of the Certificate
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or satisfactory evidence of the destruction, loss or theft thereof the Transfer
Agent and Registrar or to the co- transfer agent and co-registrar, as
applicable. An indemnity satisfactory to the Transfer Agent and Registrar or the
co-transfer agent and co-registrar, as the case may be, and the Trustee may be
required at the expense of the Offered Certificateholder before a replacement
Offered Certificate will be issued. The Certificateholder will be required to
pay any tax or other governmental charge imposed in connection with such
exchange or replacement and any other expenses (including the fees and expenses
of the Trustee and either the Transfer Agent and Registrar or the co-transfer
agent and co-registrar, as applicable) connected therewith.
Determination of LIBOR
The Trustee will determine LIBOR for each Interest Period (as defined
below) following the Initial Interest Period. For purposes of calculating LIBOR,
"London Banking Day" is any day on which commercial banks are open for business
(including dealings in foreign exchange and deposits in U.S. dollars) in London.
"LIBOR" means, for a specific Interest Period (other than the Initial
Interest Period), the rate for deposits in U.S. dollars for a period equal to
one month (commencing on the first day of an Interest Period) which appears on
Telerate Page 3750 (as defined below) as of 11:00 a.m., London time, on the
LIBOR Determination Date (as defined below) for such Interest Period. If such
rate does not appear on Telerate Page 3750, the rate for such Interest Period
will be determined on the basis of the rates at which deposits in U.S. dollars
are offered by the Reference Banks (as defined below) at approximately 11:00
a.m., London time, on such LIBOR Determination Date to prime banks in the London
interbank market for a period equal to one month (commencing on the first day of
such Interest Period). The Trustee will request the principal London office of
each of the Reference Banks to provide a quotation of its rate. If at least two
such quotations are provided, the rate for such Interest Period will be the
arithmetic mean of the quotations. If fewer than two quotations are provided as
requested, the rate for such Interest Period will be the arithmetic mean of the
rates quoted by major banks in New York City, selected by the Trustee, at
approximately 11:00 a.m., New York City time, on the first day of such Interest
Period for loans in U.S. dollars to leading European banks for a period equal to
one month (commencing on the first day of such Interest Period).
"Interest Period" means, with respect to any Distribution Date, a period
from and including the preceding Distribution Date to and including the day
immediately preceding such Distribution Date; provided, however, that the
Initial Interest Period will commence on the Closing Date.
"LIBOR Determination Date" means with respect to any Interest Period,
the second London Banking Day preceding the first day of each Interest Period.
"Reference Banks" means four major banks in the London interbank market
selected by the Trustee.
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
The Interest Rate Caps
On the Closing Date, the Trustee will enter into the Interest Rate Caps
with the Interest Rate Cap Provider. The Class A Interest Rate Cap and the Class
B Interest Rate Cap will be for the exclusive benefit of the Class A
Certificateholders and the Class B Certificateholders, respectively.
The notional amount of the Class A Interest Rate Cap (the "Class A
Notional Amount") will at all times be equal to the amount of the Expected Class
A Principal. Pursuant to the Class A Interest Rate Cap, on each Transfer Date on
which the Class A Certificate Rate for the related Interest Period exceeds [ ]%
(the "Class A Cap Rate"), the Interest Rate Cap Provider will make a payment to
the Trustee, on behalf of the Trust, in an
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amount equal to the product of (i) such excess, (ii) the Class A Notional Amount
as of such Transfer Date and (iii) the actual number of days in the related
Monthly Period divided by 360. The Class A Interest Rate Cap will terminate on
the day following the Class A Scheduled Payment Date; provided, however, that
the Class A Interest Rate Cap may be terminated at an earlier date if the
Trustee has obtained a substitute interest rate cap or entered into an
alternative arrangement satisfactory to the Rating Agency, which in each case
will not result in the reduction or withdrawal of the rating of the Offered
Certificates (such substitute interest rate cap, a "Replacement Interest Rate
Cap"; such alternative arrangement, a "Qualified Substitute Arrangement").
The notional amount of the Class B Interest Rate Cap (the "Class B
Notional Amount") will at all times be equal to the amount of the Expected Class
B Principal. Pursuant to the Class B Interest Rate Cap, on each Transfer Date on
which the Class B Certificate Rate for the related Interest Period exceeds [ ]%
(the "Class B Cap Rate"), the Interest Rate Cap Provider will make a payment to
the Trustee, on behalf of the Trust, in an amount equal to the product of (i)
such excess, (ii) the Class B Notional Amount as of such Transfer Date and (iii)
the actual number of days in the related Monthly Period divided by 360. The
Class B Interest Rate Cap will terminate on the day following the Class B
Scheduled Payment Date; provided, however, that the Class B Interest Rate Cap
may be terminated at an earlier date if the Trustee has obtained a Replacement
Interest Rate Cap or entered into a Qualified Substitute Arrangement.
In the event that the rating of the Interest Rate Cap Provider is
reduced or withdrawn, as specified in the Interest Rate Caps, the Trustee, at
the direction of the Servicer, shall use its best efforts either to obtain for
each such Interest Rate Cap a Replacement Interest Rate Cap, at the expense of
the Interest Rate Cap Provider, or to enter into a Qualified Substitute
Arrangement.
The Trustee, on behalf of the Trust, may sell all or a portion of an
Interest Rate Cap in an amount equal to the excess on such date of the Class A
Notional Amount or the Class B Notional Amount, as applicable, over the Class A
Investor Interest or the Class B Investor Interest, respectively, subject to
(among other things) Rating Agency confirmation of the rating of the related
class of Offered Certificates. Funds from any such sale will be applied as
Finance Charge Collections allocable to the related class of Offered
Certificates in accordance with the allocations described below in "--Allocation
of Funds."
The Interest Rate Cap Provider
The following information has been obtained from the Interest Rate Cap
Provider and has not been verified by People's Bank or the Underwriters. No
representation or warranty is made by People's Bank or the Underwriters with
respect thereto.
[To follow]
Book-Entry Registration
Offered Certificateholders may hold their Offered Certificates through
DTC (in the United States) or Cedel or Euroclear (in Europe), which in turn hold
through DTC, if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the physical Offered Certificate or
Offered Certificates. Cedel and Euroclear will hold omnibus positions on behalf
of the Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositaries (collectively, the "Depositaries") which in turn
will hold such positions in customers' securities accounts in the Depositaries'
names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial
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Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participating organizations ("Participants" or "DTC Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (who may
include the underwriters of any Series), banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the "Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions directly to
the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC. See Annex II.
Offered Certificate Owners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interest in, Offered Certificates may do so only through Participants and
Indirect Participants. In addition, Offered Certificate Owners will receive all
distributions of principal and interest on the Offered Certificates from the
Trustee through the Participants who in turn will receive them from DTC. Under a
book-entry format, Offered Certificate Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
Cede, as nominee for DTC. DTC will forward such payments to its Participants
which thereafter will forward them to Indirect Participants or Offered
Certificate Owners. It is anticipated that the only "Offered Certificateholder"
(as such term is used in the Agreement) of Offered Certificates in book-entry
form will be Cede, as nominee of DTC. Offered Certificate Owners will not be
recognized by the Trustee as Offered Certificateholders, as such term is used in
the Agreement, and Offered Certificate Owners will only be permitted to exercise
the rights of Offered Certificateholders indirectly through the Participants who
in turn will exercise the rights of Offered Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Offered Certificates
and is required to receive and transmit distributions of principal and interest
on the Offered Certificates. Participants and Indirect Participants with which
Offered Certificate Owners have accounts with respect to the Offered
Certificates similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Offered Certificate Owners.
Accordingly, although Offered Certificate Owners will not possess Offered
Certificates, Offered Certificate Owners will receive payments and will be able
to transfer their interests.
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Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of an Offered
Certificate Owner to pledge Offered Certificates to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
Offered Certificates, may be limited due to the lack of a physical certificate
for such Offered Certificates.
DTC has advised the Transferor that it will take any action permitted to
be taken by an Offered Certificateholder under the Agreement only at the
direction of one or more Participants to whose account with DTC the Offered
Certificates are credited. Additionally, DTC has advised the Transferor that it
will take such actions with respect to specified percentages of the Investor
Interest only at the direction of and on behalf of Participants whose holdings
include undivided interests that satisfy such specified percentages. DTC may
take conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled by Cedel in any of 36 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulations by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of any Series
of certificates. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System (the "Euroclear System") was created in 1968 to
hold securities for participants of the Euroclear System ("Euroclear
Participants") and to clear and settle transactions between Euroclear
Participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 34 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the underwriters of any Series of
certificates. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and
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receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Offered Certificates held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See Annex II. Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by an Offered Certificateholder
under the Agreement on behalf of a Cedel Participant or a Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Offered Certificates among
participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Definitive Certificates
The Offered Certificates will be issued in fully registered,
certificated form to Offered Certificate Owners or their nominees ("Definitive
Certificates"), rather than to DTC or its nominee, only if (i) the Transferor
advises the Trustee in writing that DTC is no longer willing or able to properly
discharge its responsibilities as Depository with respect to the Offered
Certificates, and the Trustee or the Transferor is unable to locate a qualified
successor, (ii) the Transferor, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of a Servicer
Default, Offered Certificate Owners representing not less than 50% of each of
the Class A Investor Interest and the Class B Investor Interest advise the
Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of the Offered Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all the Offered Certificate
Owners through Participants of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the definitive certificate representing
the Offered Certificates and instructions for re-registration, the Trustee will
issue the Offered Certificates as Definitive Certificates, and thereafter the
Trustee will recognize the holders of such Definitive Certificates as holders of
the Offered Certificates under the Agreement ("Holders").
Distribution of principal and interest on the Offered Certificates will
be made by the "Paying Agent" (as defined in the Agreement) directly to Holders
of Definitive Certificates in accordance with the procedures set forth herein
and in the Agreement. During the Revolving Period, interest payments, and during
either Amortization Period, interest and principal payments in respect of the
Offered Certificates, will be made to Offered Certificateholders as provided
herein on each Distribution Date to the holders in whose names the Definitive
Certificates were registered at the close of business on the related Record
Date. Distributions will be made by check mailed to the address of such Holder
as it appears on the certificate register. The final payment on any Offered
Certificate (whether Definitive Certificates or the Offered Certificates
registered in the name of Cede representing the Offered Certificates), however,
will be made only upon presentation and surrender of such Offered Certificate at
the office or agency specified in the notice of final distribution to Offered
Certificateholders. The Trustee will provide such notice to registered Offered
Certificateholders not later than the fifth day of the month of such final
distributions.
Definitive Certificates will be transferable and exchangeable at the
offices of the "Transfer Agent and Registrar" (as defined in the Agreement),
which shall initially be Bankers Trust Company. No service charge will be
imposed for any registration of transfer or exchange, but the Transfer Agent and
Registrar may require payment
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of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith. The Transfer Agent and Registrar, as the case may be,
shall not be required to register the transfer or exchange of Definitive
Certificates for a period of 15 days preceding the due date for any payment with
respect to such Definitive Certificates.
Interest Payments
Interest will accrue on the Class A Investor Interest at the Class A
Certificate Rate and on the Class B Investor Interest at the Class B Certificate
Rate during each Interest Period following the Initial Interest Period and will
accrue on the Class A Investor Interest at a rate of % per annum and on the
Class B Investor Interest at a rate of % per annum during the Initial Interest
Period. Interest will be distributed on [ ], 1997, and on each Distribution Date
thereafter to Certificateholders. Interest on the Class A Certificates will be
distributed in the amount of the sum of (v) the product of (a) the Class A
Certificate Rate, (b) the lesser of the Class A Adjusted Investor Interest as of
the preceding Distribution Date (or, in the case of the first Distribution Date,
the Class A Initial Investor Interest) after giving effect to all payments,
deposits and withdrawals on such Distribution Date and the Expected Class A
Principal as of the preceding Distribution Date, and (c) the actual number of
days in the related Interest Period divided by 360, plus (w) the Class A Covered
Amount for the related Interest Period, plus (x) an amount equal to the product
of (a) the Class A Excess Principal, (b) the lesser of the Class A Certificate
Rate and [ ]% per annum, and (c) the actual number of days in the related
Interest Period divided by 360 (clauses (v), (w) and (x) collectively, the
"Class A Monthly Interest"), plus (y) to the extent permitted by applicable law,
any interest accrued on such Certificates (including interest on any overdue
Class A Monthly Interest calculated at a default rate of interest) during any
prior accrual period which has not been distributed to the Certificateholders,
plus (z) to the extent that there is available Excess Spread, an amount equal to
the product of (a) the amount by which the Class A Certificate Rate exceeds [ ]%
per annum, (b) the Class A Excess Principal, if any, and (c) the actual number
of days in the related Interest Period divided by 360 (the "Class A Excess
Interest").
In the case of the Class B Certificates, interest will be distributed in
the amount of the sum of (w) the product of (a) the Class B Certificate Rate,
(b) the lesser of the Class B Investor Interest as of the preceding Distribution
Date (or, in the case of the first Distribution Date, the Class B Initial
Investor Interest) after giving effect to all payments, deposits and withdrawals
on such Distribution Date and the Expected Class B Principal as of the preceding
Distribution Date, and (c) the actual number of days in the related Interest
Period divided by 360, plus (x) an amount equal to the product of (a) the Class
B Excess Principal, (b) the lesser of the Class B Certificate Rate and [ ]% per
annum, and (c) the actual number of days in the related Interest Period divided
by 360 (collectively, the "Class B Monthly Interest"), plus (y) to the extent
permitted by applicable law, any interest accrued on such Certificates
(including interest on any overdue Class B Monthly Interest calculated at a
default rate of interest) during any prior accrual period not distributed to the
Certificateholders, plus (z) to the extent that there is available Excess
Spread, an amount equal to the product of (a) the amount by which the Class B
Certificate Rate exceeds [ ]% per annum, (b) the Class B Excess Principal, if
any, and (c) the actual number of days in the related Interest Period divided by
360 (the "Class B Excess Interest").
"Expected Class A Principal" means the amount of the Class A Adjusted
Investor Interest equal to (a) on each date to but excluding the [ ]
Distribution Date (the "Initial Expected Class A Accumulation Date"), the Class
A Initial Investor Interest, and (b) on each date thereafter through but not
including the Class A Expected Final Distribution Date, the Class A Initial
Investor Interest less the product of (i) the Controlled Accumulation Amount and
the number of Distribution Dates occurring from and including the Initial Class
A Expected Accumulation Date, and (c) on each date thereafter, zero. "Expected
Class B Principal" means the amount of the Class B Investor Interest that is
equal to (a) the Class B Initial Investor Interest on each date to but excluding
the Class B Scheduled Payment Date, and (b) on each date thereafter, zero.
"Class A Excess Principal" and "Class B Excess Principal" (collectively, the
"Excess Principal") mean on any date of determination the amount by which the
Class A Adjusted Investor Interest or the Class B Investor Interest exceeds the
Expected Class A Principal or the Expected Class B Principal, respectively,
after giving effect to all payments, deposits and withdrawals on such date.
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Any amounts in respect of distributable interest specified in clauses
(z) above with respect to the Class A Certificates and the Class B Certificates
that are unpaid on the Distribution Date following the Interest Period in which
they accrued will not be carried over to future Distribution Dates.
Interest payments up to the Class A Monthly Cap Rate Interest and Class
B Monthly Cap Rate Interest on any Distribution Date will be funded from Finance
Charge Collections allocated to the Class A Certificates and the Class B
Certificates, respectively, with respect to the preceding Monthly Period, and
interest payments up to the Class A Coverage Amount will be funded from
Principal Funding Investment Proceeds and amounts withdrawn from the Reserve
Account. Payments of any Class A Monthly Cap Rate Interest, Class B Monthly Cap
Rate Interest and the Class A Coverage Amount remaining unpaid after application
of such available funds will be paid from Excess Spread and Shared Finance
Charge Collections allocated to the Certificates. The Class A Monthly Interest
in excess of the sum of the Class A Monthly Cap Rate Interest and the Class A
Coverage Amount and Class B Monthly Interest in excess of the Class B Monthly
Cap Rate Interest will be funded from payments made pursuant to, respectively,
the Class A Interest Rate Cap and the Class B Interest Rate Cap and, if
necessary, Excess Spread and Shared Finance Charge Collections. To the extent
the sum of (w) the applicable Floating Investor Percentage of Finance Charge
Collections during the preceding Monthly Period, (x) with respect to the Class A
Coverage Amount, Principal Funding Investment Proceeds and amounts withdrawn
from the Reserve Account, and (y) Shared Finance Charge Collections allocated
and available to the Certificates is insufficient to pay such Class A Monthly
Cap Rate Interest and Class B Monthly Cap Rate Interest and such Class A
Coverage Amount, then (i) Reallocated Principal Collections (to the extent
available) will be used to make such payments to the Class A Certificates, and
(ii) Reallocated Collateral Principal Collections (to the extent available)
remaining after such payments to the Class A Certificates will be used to make
such payments to the Class B Certificates.
Principal Payments
During the Revolving Period (which begins on the Closing Date and ends
on the day before the Controlled Accumulation Period or the Rapid Amortization
Period begins), unless a reduction in the Required Collateral Interest has
occurred, no principal payments will be made to Certificateholders and Principal
Collections allocable to the Investor Interest will, subject to certain
limitations, including the allocation of any Reallocated Principal Collections
to pay the Class A Required Amount and the Class B Required Amount, be treated
as Shared Principal Collections. On each Transfer Date relating to the
Controlled Accumulation Period, the Trustee will deposit in the Principal
Funding Account an amount equal to the least of (a) the Available Investor
Principal Collections with respect to the preceding Monthly Period, (b) the
applicable Controlled Deposit Amount and (c) the Class A Adjusted Investor
Interest prior to any deposits on such date. Amounts in the Principal Funding
Account will be deposited in the Distribution Account for payment to the Class A
Certificateholders on the Class A Scheduled Payment Date. If the Class A
Investor Interest has been paid in full on the Class A Scheduled Payment Date,
on the Transfer Date immediately following the Class A Scheduled Payment Date,
amounts equal to the lesser of (a) the Available Investor Principal Collections
with respect to the preceding Monthly Period and (b) the Class B Investor
Interest will be deposited in the Distribution Account for distribution to the
Class B Certificateholders. Such amounts in the Distribution Account will be
paid to the Class B Certificateholders on the Class B Scheduled Payment Date. On
each Transfer Date, if a reduction in the Required Collateral Interest has
occurred, any Available Investor Principal Collections remaining after
application to the Offered Certificates as described herein will be applied in
accordance with the Loan Agreement to reduce the Collateral Interest to the
Required Collateral Interest. During the Controlled Accumulation Period until
the final principal payment is made to the Collateral Interest Holder, the
portion of Available Investor Principal Collections not applied to Class A
Monthly Principal, Class B Monthly Principal or Collateral Monthly Principal on
a Transfer Date will generally be treated as Shared Principal Collections.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a)(i) Principal Collections
received during such Monthly Period and certain other amounts allocable to the
Investor Interest, minus (ii) the amount of Reallocated Principal Collections
with respect to such Monthly
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Period used to fund the Required Amounts, plus (b) any Shared Principal
Collections from other Series that are allocated to Series 1997-1 with respect
to such Monthly Period.
During the Controlled Accumulation Period, the Trustee at the direction
of the Servicer shall transfer Principal Collections (other than Reallocated
Principal Collections) and Shared Principal Collections from other Series, if
any, allocated to the Certificates from the Principal Account to the Principal
Funding Account as described under "--Application of Collections." Investment
earnings (net of investment losses and expenses) on funds on deposit in the
Principal Funding Account (the "Principal Funding Investment Proceeds") will be
used to pay interest on the Class A Certificates up to an amount (the "Class A
Covered Amount") equal to, for each Transfer Date, the product of (a) a
fraction, the numerator of which is the actual number of days in the related
Interest Period and the denominator of which is 360, (b) the Class A Certificate
Rate in effect with respect to the related Interest Period and (c) the Principal
Funding Account Balance as of the preceding Distribution Date after giving
effect to all payments, deposits and withdrawals on such Distribution Date. If,
for any Transfer Date, the Principal Funding Investment Proceeds are less than
the Class A Covered Amount, the amount of such deficiency (the "Class A
Principal Funding Investment Shortfall") will be withdrawn, to the extent
available, from the Reserve Account and deposited in the Finance Charge Account
and included as Class A Available Funds for such Transfer Date.
On each Distribution Date with respect to the Rapid Amortization Period,
the Class A Certificateholders will be entitled to receive the sum of the
Available Investor Principal Collections for the related Monthly Period plus, if
the Rapid Amortization Period commences after the commencement of the
Accumulation Period, the Principal Funding Account Balance, in an amount up to
the Class A Investor Interest until the earliest of the date the Class A
Certificates are paid in full, the Scheduled Series 1997-1 Termination Date and
the termination of the Trust. After payment in full of the Class A Investor
Interest, the Class B Certificateholders will be entitled to receive on each
Distribution Date with respect to the Rapid Amortization Period the Available
Investor Principal Collections until the earliest of the date the Class B
Certificates are paid in full, the Scheduled Series 1997-1 Termination Date and
the termination of the Trust. After payment in full of the Class B Investor
Interest, the Collateral Interest Holder will be entitled to receive on each
Transfer Date (other than the Transfer Date prior to the Scheduled Series 1997-1
Termination Date) and on the Scheduled Series 1997-1 Termination Date, the
Available Investor Principal Collections until the earliest of the date the
Collateral Interest is paid in full, the Scheduled Series 1997-1 Termination
Date and the termination of the Trust. See "--Pay Out Events" below for a
discussion of events which might lead to the commencement of the Rapid
Amortization Period. See "--Application of Collections" and "--Allocation of
Funds" below for a discussion of the method by which Principal Collections and
Shared Principal Collections available to the Certificates are allocated during
either the Controlled Accumulation Period or the Rapid Amortization Period.
Postponement of Controlled Accumulation Period
Upon written notice to the Trustee, the Servicer may elect to postpone
the commencement of the Controlled Accumulation Period, and extend the length of
the Revolving Period, subject to certain conditions including those set forth
below. The Servicer may make such election only if the Accumulation Period
Length (determined as described below) is less than fourteen months. On the
Determination Date immediately preceding the [ ] Distribution Date, and each
Determination Date thereafter, until the Controlled Accumulation Period begins,
the Servicer will determine the "Accumulation Period Length", which is the
number of whole months expected to be required to fully fund the Principal
Funding Account no later than the Transfer Date preceding the Class A Scheduled
Payment Date, based on (a) the monthly Principal Collections expected to be
distributable to certificateholders of all Series, assuming a principal payment
rate no greater than the lowest monthly principal payment rate on the
Receivables for the preceding twelve months and (b) the amount of principal
expected to be distributable to certificateholders of all Series (excluding
certain other Series) which are not expected to be in their revolving periods
during the Controlled Accumulation Period. If the Accumulation Period Length is
less than fourteen months, the Servicer may, at its option, postpone the
commencement of the Controlled Accumulation Period such that the number of
months included in the Controlled Accumulation Period will be equal to or exceed
the Accumulation Period Length. The effect of the foregoing calculation is to
permit the reduction of the length
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of the Controlled Accumulation Period based on the investor interest of certain
other Series which are scheduled to be in their revolving periods during the
Controlled Accumulation Period and on increases in the principal payment rate
occurring after the Closing Date. The Accumulation Period Length of the
Controlled Accumulation Period will not be determined to be less than four
months.
Subordination
The Class B Investor Interest and the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class A Certificates. In addition, the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. No payment of principal will be made to the Class B
Certificateholders until the Class A Investor Interest is paid in full. No
payment of principal will be made to the Collateral Interest Holder on any date
until all payments of principal to the Class A Certificateholders and the Class
B Certificateholders to be made on such date have been paid or provided for in
full; provided, however, that on each Transfer Date, if a reduction of the
Required Collateral Interest has occurred, payments of principal may be made to
the Collateral Interest Holder prior to or concurrently with payments of
principal to Class A Certificateholders and Class B Certificateholders. In
addition, payment of the Required Amounts, which includes payments to cover
shortfalls in respect of (among other things) interest and Monthly Servicing
Fees, will be made on each Distribution Date first to the Class A
Certificateholders and then to the Class B Certificateholders. No payment of
interest will be made to the Collateral Interest Holder on any date until the
Class A Required Amount and the Class B Required Amount, if any, on such date
have been paid in full. Certain principal payments otherwise allocable to the
Collateral Interest Holder and, if the foregoing are insufficient, allocable to
the Class B Certificateholders may be reallocated to the Class A
Certificateholders, and certain principal payments otherwise allocable to the
Collateral Interest Holder may be reallocated to the Class B Certificateholders;
and, as a result of such reallocations, the Collateral Interest and, if the
Collateral Interest has been reduced to zero, the Class B Investor Interest may
thereby decrease. To the extent one or both of the Collateral Interest and the
Class B Investor Interest are so reduced, the percentage of Finance Charge
Collections allocated to the Collateral Interest Holder and, as applicable, the
Class B Certificateholders in subsequent Monthly Periods will be reduced.
Moreover, to the extent the amount of such decrease in the Collateral Interest
Holder and/or the Class B Investor Interest is not reimbursed, the amount of
principal distributable to the Collateral Interest and/or the Class B
Certificateholders will be reduced. See "--Allocation of Funds", "--Reallocation
of Cash Flows".
Conveyance of Receivables
On July 9, 1993 the Transferor transferred and assigned to the Trust all
of its right, title and interest in and to the Receivables in the Accounts then
outstanding and all Receivables thereafter created in the Accounts and all
monies due or to become due with respect thereto (including Principal
Receivables, Finance Charge Receivables and all proceeds of such Receivables).
On October 4, 1994, on July 14, 1995, on May 1, 1996 and on October 1, 1996, the
Transferor transferred and assigned to the Trust Receivables arising from
certain Additional Accounts designated pursuant to the Agreement. On each day
that an Eligible Automatic Additional Account has been originated or shall be
originated or designated as an Automatic Additional Account by the Transferor
(and on any day such Account exists but has not been previously added to the
Trust as a result of the limitations expressed in "-Addition of Accounts"), the
Transferor has added or will add the Receivables, as the case may be, in each
such account to the Trust and such accounts are treated as Automatic Additional
Accounts in an amount not in excess of the Maximum Addition Amount.
In connection with the transfer of the Receivables to the Trust, the
Transferor indicated in its computer files the conveyance of the Receivables to
the Trust. In addition, the Transferor provided the Trustee a computer file or a
microfiche list containing a true and complete list showing each Account,
identified by account number and indicating the total outstanding Receivable
balance transferred. The Transferor has provided the Trustee an updated list of
each Account, identified by account number and indicating the total outstanding
Receivable balance as of [ ], which list has been and will be further updated
periodically to reflect new Automatic Additional Accounts and Additional
Accounts. The Transferor will not deliver to the Trustee any other records or
agreements
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relating to the Accounts or Receivables. Except as stated above, the records and
agreements relating to the Accounts and the Receivables maintained by the
Transferor or the Servicer will not be segregated by the Transferor or the
Servicer from other documents and agreements relating to other credit card
accounts and receivables and will not be stamped or marked to reflect the
transfer of the Receivables to the Trust, but the computer records of the
Transferor are required to be marked to evidence such transfer. The Transferor
has filed UCC financing statements with respect to the Receivables meeting the
requirements of Connecticut state law. See "Risk Factors--Certain Legal Aspects"
and "Certain Legal Aspects of the Receivables".
Exchanges
The Agreement provides for the Trustee to issue two types of
certificates: (i) one or more Series of certificates transferable and having the
characteristics described below and (ii) the Exchangeable Transferor
Certificate, a certificate evidencing the Transferor Interest, currently held by
PSFC and transferable only as provided in the Agreement. The Agreement also
provides that, pursuant to any one or more Supplements, the Holder of the
Exchangeable Transferor Certificate may tender such certificate, or the Holder
of the Exchangeable Transferor Certificate may tender the Exchangeable
Transferor Certificate and the Transferor may tender the certificates evidencing
all or a portion of any Series of certificates, to the Trustee in exchange for
one or more new Series and a reissued Exchangeable Transferor Certificate. Under
the Agreement, the Transferor and the Trustee will execute a Supplement in
conjunction with such an Exchange that will specify, with respect to any newly
issued Series, certain terms which may include: (i) its name or designation;
(ii) its initial principal amount (or method for calculating such amount); (iii)
its coupon rate (or formula for the determination thereof); (iv) the closing
date; (v) the rating agency or agencies, if any, rating the Series; (vi) the
interest payment date or dates and the date or dates from which interest shall
accrue including the interest accrual period with respect to such Series; (vii)
the name of the clearing agency, if any; (viii) the method for allocating
Collections to certificateholders of such Series; (ix) the names of any accounts
to be used by such Series and the terms governing the operations of any such
accounts; (x) the percentage used to calculate monthly servicing fees; (xi) the
Minimum Transferor Interest; (xii) the minimum amount of Aggregate Principal
Receivables required to be maintained by the Transferor through the designation
of Additional Accounts; (xiii) the enhancer and terms of the Enhancement with
respect thereto; (xiv) the base rate applicable to such Series; (xv) the terms
on which the certificates of such Series may be repurchased by the Transferor or
remarketed to other investors; (xvi) the series termination date; (xvii) any
deposit into any account maintained for the benefit of certificateholders of
such Series; (xviii) the number of classes of such Series, and if more than one
class, the rights and priorities of each such class; (xix) the extent to which
the certificates of such Series will be issuable in temporary or permanent
global form (and, in such case, the depositary for such global certificate or
certificates, the terms and conditions, if any, upon which such global
certificate may be exchanged, in whole or in part, for definitive certificates,
and the manner in which any interest payable on a temporary or permanent global
certificate will be paid); (xx) whether the certificates of such Series may be
issued in bearer form and any limitations imposed thereon; (xxi) whether
Interchange or other fees will be included in funds available to
certificateholders of such Series; (xxii) the priority of any Series with
respect to any other Series; (xxiii) the rights of the Holder of the
Exchangeable Transferor Certificate that have been transferred to the holders of
such Series; and (xxiv) any other relevant terms (all such terms, the "Principal
Terms" of such Series). None of the Transferor, the Servicer, the Holder of the
Exchangeable Transferor Certificate, the Trustee or the Trust is required or
intends to obtain the consent of any Certificateholder to issue any additional
Series. As a condition of an Exchange, however, the Trustee must receive written
confirmation that the Exchange will not result in the Rating Agency reducing or
withdrawing its rating of any outstanding Series, including the Certificates.
The Transferor and the Holder of the Exchangeable Transferor Certificate may
offer any Series to the public under a Disclosure Document in transactions
either registered under the Securities Act or exempt from registration
thereunder directly, through the Underwriters or one or more other underwriters
or placement agents, in fixed-price offerings or in negotiated transactions or
otherwise. Any such Series may be issued in fully registered or book-entry form
in minimum denominations determined by the Transferor. The Transferor and the
Holder of the Exchangeable Transferor Certificate may offer, from time to time,
additional Series.
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The Agreement provides that the Holder of the Exchangeable Transferor
Certificate may perform Exchanges and the related Supplements may define
Principal Terms such that each Series has a period during which amortization or
accumulation of the principal amount thereof is intended to occur which may have
a different length and begin on a different date than such period for any other
Series. Further, one or more Series may be in their amortization periods or
accumulation periods, as the case may be, while other Series are not. Thus,
certain Series may not be amortizing or accumulating, as the case may be, while
other Series are amortizing or accumulating. Moreover, each Series may have the
benefits of the Enhancement available only to such Series. Under the Agreement,
the Trustee shall hold any such form of Enhancement only on behalf of the Series
to which the Enhancement relates. Likewise, with respect to each such form of
Enhancement, a different form of Enhancement agreement may be delivered to the
Trustee. The Agreement also provides that the related Supplements may specify
different coupon rates and monthly servicing fees with respect to each Series
(or a particular class within such Series) and may vary between Series the terms
upon which a Series (or a particular class within such Series) may be
repurchased by the Transferor or remarketed to other investors. In addition, a
Series Supplement may permit (as does the Series 1997-1 Supplement) an Investor
Exchange by which the certificateholders of such Series may elect to exchange
their certificates for one or more newly issued Series of certificates upon the
satisfaction of certain conditions specified in the Agreement and the related
Supplement. Additionally, certain Series may be subordinated to other Series, or
classes within a Series may have different priorities. The Series 1997-1
Supplement will not permit the subordination of such Series to any other Series
issued or which may hereafter be issued by the Trust. There is no limit to the
number of Exchanges that may be performed under the Agreement. The Trust will
terminate only as provided in the Agreement.
Under the Agreement and pursuant to a Supplement, an Exchange may only
occur upon the satisfaction of certain conditions provided in the Agreement.
Under the Agreement, the Holder of the Exchangeable Transferor Certificate may
perform an Exchange by notifying the Trustee at least three days in advance of
the date upon which the Exchange is to occur. Under the Agreement, the notice
will state the designation of any Series to be issued on the date of the
Exchange and, with respect to each such Series: (i) its initial principal amount
(or method for calculating such amount) which amount may not be greater than the
current principal amount of the Exchangeable Transferor Certificate plus, in the
case of an Investor Exchange, the current principal amount of the investor
certificates to be exchanged, (ii) its certificate rate (or method for
calculating such rate) and (iii) the provider of the Enhancement, if any, which
is expected to provide credit support with respect to it. On the date of the
Exchange, the Agreement provides that the Trustee will authenticate any such
Series only upon delivery to it of the following, among others: (i) a Supplement
in form satisfactory to the Trustee signed by the Transferor and specifying the
Principal Terms of such Series, (ii) an opinion of counsel to the effect that
the certificates of such Series, unless otherwise stated, will be characterized
as indebtedness of the Transferor under existing law for Federal, Connecticut
and New York state income tax purposes, (iii) an opinion of counsel to the
effect that the issuance of such Series will not materially adversely impact the
Federal, Connecticut or New York state income tax characterization of any
outstanding Series or result in the Trust being subject to Federal, New York or
Connecticut tax at the entity level, (iv) the Enhancement, if any, and an
appropriate form of Enhancement agreement or instrument with respect thereto
executed by the Transferor and the issuer of the Enhancement, (v) written
confirmation from the Rating Agency that the Exchange will not result in such
Rating Agency reducing or withdrawing its rating on any outstanding Series, (vi)
the existing Exchangeable Transferor Certificate and, if applicable,
certificates of the Series to be exchanged, and (vii) a certificate of an
officer of the Transferor that on the date such Exchange occurs, after giving
effect to such Exchange, the Transferor Interest will be at least equal to the
Minimum Transferor Interest. Upon satisfaction of such conditions, the Trustee
will cancel the existing Exchangeable Transferor Certificate and the
certificates of the exchanged Series, if applicable, and authenticate the new
Series and a new Exchangeable Transferor Certificate.
Representations and Warranties
The Transferor has made and will make upon execution of each Supplement
certain representations and warranties to the Trust to the effect that, among
other things, (a) as of the Closing Date and the closing date of the issuance by
the Trust of the initial Series of certificates, the Transferor was duly
incorporated and in good standing
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and that it has the authority to consummate the transactions contemplated by the
Agreement and (b) as of the Series Cut-Off Date, or, with respect to any
Additional Account or Automatic Additional Account, the date on which such
Additional Account or Automatic Additional Account was transferred to the Trust,
each Account was an Eligible Account (as defined below). If (i) any of these
representations and warranties proves to have been incorrect in any material
respect when made, and continues to be incorrect for 60 days after notice to the
Transferor by the Trustee or to the Transferor and the Trustee by
Certificateholders holding not less than 50% of each of the Class A Investor
Interest, the Class B Investor Interest and the Collateral Interest and (ii) as
a result the interests of the Certificateholders are materially adversely
affected, and continue to be materially adversely affected during such period,
then the Trustee or Certificateholders holding not less than 50% of each of the
Class A Investor Interest, the Class B Investor Interest and the Collateral
Interest may give notice to the Transferor (and to the Trustee in the latter
instance) declaring that a Pay Out Event has occurred, thereby commencing the
Rapid Amortization Period.
See "-Pay Out Events".
The Transferor has made and will make upon the execution of each
Supplement representations and warranties to the Trust relating to the
Receivables to the effect, among other things, that (a) as of the closing date
of the issuance by the Trust of the related Series of certificates, each of the
Receivables then existing is an Eligible Receivable (as defined below) and (b)
as of the date of creation of any new Receivable, such Receivable is an Eligible
Receivable and the representation and warranty set forth in clause (b) in the
immediately following paragraph is true and correct with respect to such
Receivable. In the event (i) of a breach of any representation and warranty set
forth in this paragraph, within 60 days, or such longer period as may be agreed
to by the Trustee (but no longer than 120 days), of the earlier to occur of the
discovery of such breach by the Transferor or Servicer or receipt by the
Transferor of written notice of such breach given by the Trustee or any
"Enhancement Provider" (as defined in the Agreement), or, with respect to
certain breaches relating to prior liens, immediately upon the earlier to occur
of such discovery or notice and (ii) that, except with respect to certain
breaches relating to prior liens, as a result of such breach, the Receivables in
the related Accounts are charged off as uncollectible, the Trust's rights in, to
or under such Receivables or their proceeds are impaired or the proceeds of such
Receivables are not available for any reason to the Trust free and clear of any
lien, the Transferor shall accept reassignment of each Principal Receivable as
to which such breach relates (an "Ineligible Receivable") on the terms and
conditions set forth below; provided, however, that no such reassignment shall
be required to be made with respect to such Ineligible Receivable if, on any day
within the applicable period (or such longer period as may be agreed to by the
Trustee), the representations and warranties with respect to such Ineligible
Receivable shall then be true and correct in all material respects. The
Transferor shall accept reassignment of each such Ineligible Receivable by (i)
depositing into the Collection Account an amount equal to the Finance Charge
Receivables collected with respect to such Ineligible Receivable and (ii)
directing the Servicer to deduct the amount of each such Ineligible Receivable
from the aggregate amount of Principal Receivables used to calculate the
Transferor Interest; provided, however, that if the exclusion of an Ineligible
Receivable from the calculation of the Transferor Interest would cause the
Transferor Interest to be less than the Minimum Transferor Interest or would
otherwise not be permitted by law, then such Ineligible Receivable shall be
removed upon the Transferor depositing in the Excess Funding Account (for
allocation as a Principal Receivable) in immediately available funds an amount
equal to the amount by which the Transferor Interest would be reduced below the
Minimum Transferor Interest. Any such deduction or deposit shall be considered a
repayment in full of the Ineligible Receivable. The obligation of the Transferor
to accept reassignment of any Ineligible Receivable is the sole remedy
respecting any breach of the representations and warranties set forth in this
paragraph with respect to such Receivable available to Certificateholders or the
Trustee on behalf of Certificateholders.
The Transferor has made and will make upon the execution of each
Supplement representations and warranties to the Trust to the effect, among
other things, that as of the Closing Date and the closing date of the issuance
by the Trust of the related Series of certificates (a) the Agreement, including
the Supplement, constitutes a legal, valid and binding obligation of the
Transferor and (b) the transfer of Receivables by it to the Trust under the
Agreement constitutes either a valid transfer and assignment to the Trust of all
right, title and interest of the Transferor in and to the Receivables (other
than Receivables in Additional Accounts), whether then existing or thereafter
created and the proceeds thereof (including amounts in any of the accounts
established for the benefit of
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the certificateholders), Recoveries allocable to the Trust and Interchange with
respect to the Trust or the grant of a first priority security interest in such
Receivables (except for certain tax liens) and the proceeds thereof (including
amounts in any of the accounts established for the benefit of the
certificateholders), which is effective as to each such Receivable upon the
creation thereof and which has been perfected. The Transferor has made, and will
make (or has been or will be deemed to make), similar representations and
warranties to the Trust in connection with each assignment of Receivables in
Additional Accounts or Automatic Additional Accounts. In the event of a breach
of any of the representations and warranties described in the first sentence of
this paragraph, either the Trustee or the holders of certificates evidencing
undivided interests in the Trust aggregating more than 50% of the sum of the
investor interests of all Series issued and outstanding, by written notice to
the Transferor (and to the Trustee and the Servicer if given by the
certificateholders), may direct the Transferor to accept reassignment of the
Trust Portfolio within 60 days of such notice, or within such longer period
specified in such notice (but no longer than 120 days). The Transferor will be
obligated to accept reassignment of such Receivables on a Distribution Date
occurring within such applicable period. Such reassignment will not be required
to be made, however, if at any time during such applicable period, or such
longer period, the representations and warranties shall then be true and correct
in all material respects. The deposit amount for such reassignment with respect
to each Series of certificates required to be repurchased following such notice,
including the Certificates, will generally be equal to the investor interest of
each such Series on the last day of the Monthly Period preceding the
Distribution Date on which the reassignment is scheduled to be made plus an
amount equal to all interest accrued but unpaid on such certificates at the
applicable certificate rate (less the amounts previously allocated for payment
of interest and principal with respect to each such Series of certificates)
through the end of the interest accrual periods of each such Series. The
reassignment deposit amount shall equal the sum of the reassignment deposits
with respect to each Series then issued and outstanding which is required to be
repurchased following such notice. The payment of such reassignment deposit
amount into the Collection Account will be considered a prepayment in full of
all Receivables and will be paid in full to the certificateholders of such
Series upon presentation and surrender of their certificates. In the Series
1997-1 Supplement, the Transferor represents and warrants that, as of the
Closing Date, the Agreement, as supplemented by such Supplement, constitutes a
legal, valid and binding obligation of the Transferor. Upon a breach of this
representation, either the Trustee or the holders of Certificates evidencing
aggregate undivided interests in the Trust aggregating more than 50% of each of
the Class A Investor Interest, the Class B Investor Interest and the Collateral
Interest by written notice to the Transferor (and to the Trustee and the
Servicer if given by the Certificateholders) may direct the Transferor to
purchase the Certificates (but not the certificates of any other Series) on
terms and conditions substantially similar to those set forth above. If the
Trustee or the certificateholders (including the Certificateholders) give a
notice as provided above, the obligation of the Transferor to make any such
deposit or repurchase will constitute the sole remedy respecting a breach of the
representations and warranties (set forth in this paragraph) available to the
Trustee or the certificateholders.
An "Eligible Account" is defined to mean a VISA or MasterCard credit
card account owned by the Transferor which, as of the Series Cut-Off Date, (a)
is payable in United States dollars, (b) has not been identified on the computer
files of the Transferor as relating to a cardholder who has died or commenced
action relating to bankruptcy or who is the subject of an involuntary
bankruptcy, insolvency or similar action, (c) has not been classified by the
Transferor as counterfeit, fraudulent, stolen or lost, or as a corporate
business card, (d) has not been charged off by the Transferor in its customary
and usual manner for charging off such Account as of the Series Cut-Off Date,
(e) has not been (and no Receivables in such Account have been) sold or pledged
to any other person, (f) is not an account on which People's Bank or an
affiliate of People's Bank is the obligor and (g) as of the date of origination
of such account, the obligor of which had a billing address in the United
States, its territories or possessions.
An "Eligible Receivable" is defined to mean each Receivable (a) arising
under an Eligible Account, an Eligible Additional Account (in the case of
Additional Accounts) or an Eligible Automatic Additional Account (in the case of
Automatic Additional Accounts), as the case may be, (b) created in compliance,
in all material respects, with all requirements of law applicable to the
Transferor, and pursuant to a credit card agreement complying in all material
respects with all requirements of law applicable to the Transferor, (c) with
respect to which all consents or authorizations of, or registrations with, any
governmental authority required to be obtained or given by the
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Transferor in connection with the creation of such Receivable or the execution,
delivery, creation and performance by the Transferor of the related credit card
agreement have been duly obtained or given and are in full force and effect as
of the date of the creation of such Receivable, (d) as to which, at the time of
its creation and at all times thereafter, the Transferor or the Trust had good
and marketable title free and clear of all liens and security interests (other
than certain tax liens for taxes not then due or which the Transferor is
contesting), (e) which is the legal, valid and binding payment obligation of the
cardholder thereof, legally enforceable against such cardholder in accordance
with its terms (with certain bankruptcy-related exceptions), (f) which
constitutes an "account" or "general intangible" under and as defined in Article
9 of the UCC as then in effect in the State of New York, (g) as to which as of
the time of its transfer to the Trust, the Transferor has satisfied all material
obligations on its part with respect to such Receivable required to be
satisfied, (h) which is not, at the time of its transfer to the Trust, subject
to any right of rescission, setoff, counterclaim or defense (including the
defense of usury), other than certain bankruptcy related defenses and (i) as to
which the Transferor has done nothing to impair, or omitted to take any action
the omission of which would impair, the rights of the Trust or the
certificateholders.
The Trustee has not made, and it is not required or anticipated that the
Trustee will make, any general examination of the Receivables or any records
relating to the Receivables for the purpose of establishing the presence or
absence of defects, compliance with the Transferor's representations and
warranties or for any other purpose. The Servicer, however, has delivered and
will deliver to the Trustee on or before March 31 of each year, beginning in
1994, an opinion of counsel with respect to the validity of the security
interest of the Trust in and to the Receivables and certain other components of
the Trust. The Transferor has undertaken to file any such opinion of counsel
delivered to the Trustee with the Commission as an exhibit to a report on Form
8-K filed under the provisions of the Exchange Act.
Sale of Accounts
The Transferor has the right to sell, transfer or pledge the Accounts;
provided, however, that (i) the Rating Agency has advised the Transferor and the
Trustee that such sale, transfer or pledge will not result in the reduction or
withdrawal of the then-existing rating of the certificates, (ii) the Transferor
and the Servicer determine such sale, transfer or pledge will not be materially
adverse to the interests of the certificateholders, (iii) such purchaser,
transferee or pledgee shall expressly assume in a supplemental agreement the
applicable obligations and covenants of the Transferor and (iv) certain other
conditions specified in the Agreement are satisfied.
Addition of Accounts
On each day an Eligible Automatic Additional Account is originated (and
on any day such Account exists but has not been previously added to the Trust as
a result of the limitations expressed in the next succeeding sentence), the
Transferor will add the Receivables in each such account to the Trust and such
accounts shall be treated as Automatic Additional Accounts in an amount not in
excess of the Maximum Addition Amount. An "Eligible Automatic Additional
Account" is, as of the relevant date of addition, an Automatic Additional
Account that is (i) a VISA Account or MasterCard credit card account, satisfying
the criteria set forth in the definition of Eligible Account, or (ii) any other
consumer revolving credit account (x) satisfying the criteria set forth in the
definition of Eligible Account without regard to the requirement that such
account be a VISA or MasterCard credit card account, (y) which would not cause
the Rating Agency to indicate in writing that such addition would result in the
reduction or withdrawal of its then-existing rating of any Series of
certificates and (z) to which, to the extent provided in any Supplement, the
provider of any Enhancement for the related Series of certificates consents,
which consent shall not be unreasonably withheld. The Agreement provides that
Automatic Additional Accounts will be transferred to the Trust only if the
following conditions are met: the number of Automatic Additional Accounts the
Receivables of which are designated to be added to the Trust since (i) the first
day of the eleventh preceding Monthly Period minus the number of Automatic
Additional Accounts whose inclusion has been approved by the Rating Agencies,
that satisfy certain other conditions and that were added on the initial day of
the addition of such type of Account since the first day of such eleventh
preceding Monthly Period plus the number of Additional Accounts, if any, the
Receivables of which were required to be and have been designated to be added to
the Trust
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since the first day of such eleventh preceding Monthly Period pursuant to the
next paragraph minus any Removed Accounts removed since the first day of such
eleventh preceding Monthly Period shall not exceed 15% of the number of Accounts
on the first day of such eleventh preceding Monthly Period, and (ii) the first
day of the second preceding Monthly Period minus the number of Automatic
Additional Accounts whose inclusion has been approved by the Rating Agencies,
that satisfy certain other conditions and that were added on the initial day of
the addition of such type of Account since the first day of such second
preceding Monthly Period plus the number of Additional Accounts, if any, the
Receivables of which were required to be and have been designated to be added to
the Trust since the first day of such second preceding Monthly Period pursuant
to the next paragraph minus any Removed Accounts removed since the first day of
such second preceding Monthly Period shall not exceed 10% of the number of
Accounts on the first day of such second preceding Monthly Period (the lesser of
the amounts described in clauses (i) and (ii) of this sentence, the "Maximum
Addition Amount"). The Transferor, at its option, may terminate or suspend the
inclusion of Automatic Additional Accounts at any time.
As described above in "The Receivables", the Transferor has the right
and, in some circumstances, is obligated to designate from time to time
Additional Accounts to be included as Accounts. The Transferor will be required
to add Additional Accounts (i) if on any Record Date the Transferor Interest for
the related Monthly Period is less than the Minimum Transferor Interest of the
Aggregate Principal Receivables (or such higher amount established pursuant to a
Supplement) or (ii) if, on any date of determination, the Aggregate Principal
Receivables is less than the Minimum Aggregate Principal Receivables. Each such
Additional Account must be an "Eligible Additional Account". An "Eligible
Additional Account" is, as of the date such account is added to the Trust,
either (i) a VISA or MasterCard credit card account satisfying the criteria set
forth in the definition of Eligible Account or (ii) any other consumer revolving
credit account, (a) satisfying the criteria set forth in the definition of
Eligible Account (without regard to the requirement that such account be a VISA
or MasterCard credit card account), (b) the addition of the receivables of which
would not cause the Rating Agency to indicate in writing that such addition
would result in the reduction or withdrawal of its then existing rating of any
Series of certificates and (c) to which, to the extent provided in any
Supplement, the provider of any Enhancement for the related Series of
certificates consents, which consent shall not be unreasonably withheld. The
Transferor will convey to the Trust its interest in all Receivables of such
Additional Accounts, whether such Receivables are then-existing or thereafter
created subject to the following conditions, among others: (i) the Transferor
shall have given prior written notice of such additions to the Rating Agency,
(ii) the Transferor shall have received notice from the Rating Agency that the
inclusion of such accounts as Additional Accounts will not result in the
reduction or withdrawal of its then existing rating of any Series of
certificates, (iii) no selection procedure believed by the Transferor to be
materially adverse to the interests of the holders of any Series of
certificates, including the Certificateholders, was used in selecting the
Additional Accounts and (iv) each Account was an Eligible Additional Account.
Removal of Accounts
Subject to the conditions set forth in the next succeeding sentence, on
each Determination Date on which the Transferor Interest for the related Monthly
Period exceeds 10% of Aggregate Principal Receivables on such Determination
Date, the Transferor may, but shall not be obligated to, designate Receivables
from Accounts for deletion and removal from the Trust without notice to the
certificateholders (the "Removed Accounts"). The Transferor is permitted to
designate and require reassignment of Receivables from Removed Accounts only
upon satisfaction of the following conditions, among others: (i) the Transferor
shall have delivered to the Trustee for execution a written reassignment and a
computer file or microfiche list containing a true and complete list of all
Removed Accounts, the Accounts to be identified by, among other things, account
number and their aggregate amount of Principal Receivables as of the "Removal
Date" (as defined in the Agreement); (ii) the Transferor shall represent and
warrant that no selection procedure used by the Transferor which is materially
adverse to the interests of the certificateholders was utilized in selecting the
Removed Accounts; (iii) the removal of any Receivables of any Removed Accounts
shall not, in the reasonable belief of the Transferor, (a) cause a Pay Out Event
to occur or (b) cause the Transferor Interest as a percentage of Aggregate
Principal Receivables to be less than 10% on such Removal Date; (iv) the
Transferor shall have delivered prior written notice of the removal to the
Rating Agency and prior to the date on which such Receivables are to be removed,
the Transferor shall have received notice from
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the Rating Agency that such removal will not result in the reduction or
withdrawal of the then-existing rating of any Series of certificates; (v) the
Transferor shall have delivered to the Trustee an officer's certificate
confirming the items set forth in clauses (i) through (iv) above; and (vi) the
Transferor, the Trustee and the Rating Agency will have received an opinion of
counsel that the proposed removal will not adversely affect the federal income
tax characterization of the Trust.
Collection and Other Servicing Procedures
Pursuant to the Agreement, the Servicer will be responsible for
servicing and administering the Receivables in accordance with the Servicer's
policies and procedures for servicing credit card receivables comparable to the
Receivables. The Servicer maintains a blanket bond coverage insuring against
losses through wrongdoing of its officers and employees who are involved in the
servicing of credit card receivables covering such actions and in such amounts
as the Servicer believes to be reasonable from time to time.
Discount Option
The Transferor may at its option at any time designate a specified fixed
or variable percentage (the "Discount Percentage") of the amount of Receivables
arising in designated Accounts on and after the date such option (the "Discount
Option") is exercised that otherwise would have been treated as Principal
Receivables to be treated as Finance Charge Receivables. Such designation of the
Discount Percentage will become effective only upon satisfaction of the
requirements set forth in the Agreement, including confirmation by each Rating
Agency that such designation will not result in a withdrawal or reduction of its
rating of any outstanding Series of certificates. On the date of processing of
any Collections, the product of the Discount Percentage and Collections of
Receivables that arise in the designated Accounts on such day on or after the
date such option is exercised that otherwise would be Principal Receivables will
be deemed Finance Charge Collections and will be applied accordingly. The
Transferor may at its option, at any time, temporarily or permanently suspend
the Discount Option. Each Certificateholder by its acceptance of a beneficial
interest in a Certificate shall be deemed to have consented to the exercise by
the Transferor of the Discount Option at such time as the Transferor determines
to exercise such option.
The Collection Account
The Servicer has established and will maintain, or cause to be
maintained, in the name of the Trust, for the benefit of certificateholders, a
"Collection Account", which is a non-interest bearing segregated trust account
established with a "Qualified Institution", defined either as the corporate
trust department of a Qualified Trust Institution or as a depository institution
(which may include the Servicer, the Trustee or an affiliate of the Servicer),
organized under the laws of the United States or any one of the states thereof,
which at all times has a certificate of deposit rating of P-1 by Moody's
Investors Service, Inc. ("Moody's") and of A-1+ by Standard & Poor's Ratings
Services, a division of The McGraw Hill Companies, Inc. ("Standard & Poor's"),
or a long term rating of at least Aa3 by Moody's and of at least AAA by Standard
& Poor's and deposit insurance as required by law and by the FDIC. In addition,
the Supplement with respect to any Series may require the Trustee to establish
and maintain a subaccount of the Collection Account for such Series (such
subaccount, a "Collection Subaccount"). Funds in the Collection Account or, as
provided in the related Supplement, any Collection Subaccount, may be invested
to the extent provided in such Supplement, at the direction of the Servicer, in
specified investments including (i) obligations of or fully guaranteed by the
United States of America, (ii) demand deposits, time deposits or certificates of
deposit of depository institutions or trust companies, the certificates of
deposit of which have a rating from Standard & Poor's of A-1+ and either the
certificates of deposit of which have a rating from Moody's of P-1 or the
long-term unsecured debt obligations of which have a rating from Moody's of Aa3,
and which demand deposits, time deposits and certificates of deposit are fully
insured to the limits as required by law and by the FDIC, (iii) commercial paper
having, at the time of the Trust's investment, a rating of P-1 and A-1+,
respectively, from Moody's and Standard & Poor's, (iv) bankers acceptances
issued by any depository institution or trust company described in clause (ii)
above, (v) money market funds rated AAA-m or AAAm-G by Standard & Poor's or P-1
by Moody's or which have otherwise been approved in writing by the Rating Agency
and (vi) certain open-end
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diversified investment companies which have been approved in writing by the
Rating Agency ("Permitted Investments"). Any earnings (net of losses and
investment expenses) on funds in the Collection Account or any Collection
Subaccount will be paid monthly to the Transferor or as otherwise specified in
the related Supplement. The Servicer has the revocable power to withdraw funds
from the Collection Account or any Collection Subaccount for the sole purpose of
carrying out the Servicer's duties under the Agreement. The Servicer will
initially make daily deposits of Collections allocable to the Investor Interest
into the Collection Account and will not be entitled to use any such deposited
funds for its own purposes. The Paying Agent shall have the revocable power to
withdraw funds from the Collection Account or any Collection Subaccount for the
purpose of making distributions to the certificateholders in the manner provided
in the related Supplement. The Paying Agent shall initially be the Trustee. The
Series 1997-1 Supplement provides for the establishment of a Series 1997-1
Collection Subaccount and the investment of certain funds therein in Permitted
Investments. In addition, the Servicer has established and will maintain or
cause to be maintained with a Qualified Institution (other than the Transferor)
in the name of the Trustee, on behalf of the Trust, a segregated trust account,
the "Excess Funding Account" for the benefit of the certificateholders of each
Series and the Holder of the Exchangeable Transferor Certificate. Amounts on
deposit in such Excess Funding Account will be invested in the manner directed
by the Transferor in Permitted Investments.
Series 1997-1 Accounts
The Servicer will establish and maintain with a Qualified Trust
Institution in the name of the Trustee for the benefit of the
Certificateholders, three separate accounts in a segregated trust account
maintained in the corporate trust department of such Qualified Trust Institution
(which accounts need not be deposit accounts), and which will be designated the
"Finance Charge Account", the "Principal Account" and the "Principal Funding
Account" . The Servicer will also establish a "Distribution Account" (a
non-interest bearing segregated demand deposit account established with a
Qualified Trust Institution).
A "Qualified Trust Institution" is a depository institution (which may
include the Trustee) having corporate trust powers, organized under the laws of
the United States or any one of the states thereof, which at all times has a
long term rating of at least Baa3 by Moody's and of at least BBB- by Standard &
Poor's and deposit insurance as required by law and by the FDIC. Funds in the
Principal Account and the Finance Charge Account will be invested, at the
direction of the Servicer, in Permitted Investments. Any earnings (net of losses
and investment expenses) on funds in the Finance Charge Account or the Principal
Account will be paid to the Transferor. The Servicer will have the revocable
power to withdraw funds from the Collection Account, the Finance Charge Account,
the Principal Account and the Excess Funding Account for the purpose of carrying
out the Servicer's duties under the Agreement. The Paying Agent shall have the
revocable power to withdraw funds from the Distribution Account for the purpose
of making distributions to the Certificateholders. The Distribution Account
shall not contain any funds of the Transferor or amounts allocable to the
Transferor Interest, and no amounts on deposit therein shall be made available
to the Transferor.
The Finance Charge Account, the Principal Account, the Principal Funding
Account and the Distribution Account are collectively referred to as the "Series
1997-1 Accounts".
Allocation Percentages
Pursuant to the Agreement, the Servicer will allocate between the
Investor Interest, the investor interest of all other Series of certificates
issued and outstanding and the Transferor Interest all amounts collected on
Finance Charge Receivables, all amounts collected on Principal Receivables and
all Receivables in Defaulted Accounts. The Servicer will make each allocation by
reference to the applicable Investor Percentage (or the applicable percentage
for each other Series) and the Transferor Percentage in each case. "Collections"
(as defined in the Agreement) will be applied first, as Collections in respect
of Finance Charge Receivables billed ("Finance Charge Collections") and, second,
as Collections in respect of Principal Receivables billed ("Principal
Collections").
The Investor Percentage will be calculated as follows:
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Finance Charge Collections and Receivables in Defaulted Accounts;
Principal Collections during Revolving Period. When used with respect to Finance
Charge Collections, or with respect to Receivables in Accounts written off as
uncollectible ("Defaulted Accounts") at any time, or when used with respect to
Principal Collections during the Revolving Period, "Investor Percentage" means
for any Monthly Period, the "Floating Investor Percentage", which shall be, on
any date of determination, the percentage equivalent of a fraction, the
numerator of which is the Adjusted Investor Interest, determined as of the last
day of the Monthly Period immediately preceding such date of determination (or,
with respect to the first Monthly Period, the Initial Investor Interest), and
the denominator of which is the greater of (i) the Aggregate Principal
Receivables, determined as of the last day of the Monthly Period immediately
preceding such date of determination (or with respect to the first Monthly
Period, the Aggregate Principal Receivables as of the Closing Date), and (ii)
the sum of the numerators used to calculate the applicable investor percentages
for all outstanding Series on such date of determination; provided, however,
that with respect to any Monthly Period in which a Removal Date occurs, the
amount in clause (i) above shall be the weighted average of (x) for the period
from and including the first day of such Monthly Period to but excluding the
related Removal Date, the Aggregate Principal Receivables in the Trust as of the
close of business on the last day of the prior Monthly Period, and (y) for the
period from and including such related or Removal Date to and including the last
day of such Monthly Period, the Aggregate Principal Receivables in the Trust as
of the beginning of the day on the related Removal Date, after adjusting for the
aggregate amount of Principal Receivables removed from the Trust on the related
Removal Date. Such amounts so allocated will be further allocated between the
Class A Certificateholders, the Class B Certificateholders and the Collateral
Interest Holder based on the Class A Floating Allocation, the Class B Floating
Allocation and the Collateral Floating Allocation, respectively. The "Class A
Floating Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage may never exceed 100%) of a fraction, the numerator
of which is equal to the Class A Adjusted Investor Interest as of the close of
business on the last day of the preceding Monthly Period (or with respect to the
first Monthly Period, as of the Closing Date) and the denominator of which is
equal to the Adjusted Investor Interest as of the close of business on such day.
The "Class B Floating Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which percentage may never exceed 100%) of a fraction,
the numerator of which is equal to the Class B Investor Interest as of the close
of business on the last day of the preceding Monthly Period (or with respect to
the first Monthly Period, as of the Closing Date) and the denominator of which
is equal to the Adjusted Investor Interest as of the close of business on such
day. The "Collateral Floating Allocation" means, with respect to any Monthly
Period, the percentage equivalent (which percentage may never exceed 100%) of a
fraction, the numerator of which is equal to the Collateral Interest as of the
close of business on the last day of the preceding Monthly Period (or with
respect to the first Monthly Period, as of the Closing Date) and the denominator
of which is equal to the Adjusted Investor Interest as of the close of business
on such day.
Principal Collections during the Controlled Accumulation Period or the
Rapid Amortization Period. When used with respect to Principal Collections for
any Monthly Period during the Controlled Accumulation Period or the Rapid
Amortization Period, "Investor Percentage" means the "Fixed Investor
Percentage", which shall be, on any date of determination, the percentage
equivalent of a fraction, the numerator of which is the Investor Interest as of
the close of business on the last day of the Revolving Period (or, if there has
been an Investor Exchange with respect to the Certificates after the end of the
Revolving Period, the Investor Interest as of the end of the Revolving Period
will be reduced ratably to reflect the amount of Certificates tendered and
cancelled pursuant to any Investor Exchange), and the denominator of which is
the greater of (a) the Aggregate Principal Receivables determined as of the last
day of the Monthly Period immediately preceding such date of determination and
(b) the sum of the numerators used to calculate the applicable investor
percentages for all outstanding Series on such date of determination with
respect to Principal Receivables; provided, however, that with respect to any
Monthly Period in which a Removal Date occurs, the amount in clause (i) above
shall be the weighted average of (x) the Aggregate Principal Receivables in the
Trust as of the close of business on the last day of the prior Monthly Period
for the period from and including the first day of such Monthly Period to but
excluding the related Removal Date, and (y) the Aggregate Principal Receivables
in the Trust as of the beginning of the day on the related Removal Date, after
adjusting for the aggregate amount of Principal Receivables removed from the
Trust on the related Removal Date, for the period from and including the related
Removal Date to and including the last day of such Monthly Period.
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Such amounts so allocated will be further allocated between the Class A
Certificateholders, the Class B Certificateholders and the Collateral Interest
Holder based on the Class A Fixed Allocation, the Class B Fixed Allocation and
the Collateral Allocation, respectively. The "Class A Fixed Allocation" means,
with respect to any Monthly Period, the percentage equivalent (which percentage
may never exceed 100%) of a fraction, the numerator of which is equal to the
Class A Investor Interest as of the close of business on the last day of the
Revolving Period and the denominator of which is equal to the Investor Interest
as of the close of business on such day. The "Class B Fixed Allocation" means,
with respect to any Monthly Period, the percentage equivalent (which percentage
may never exceed 100%) of a fraction, the numerator of which is equal to the
Class B Investor Interest as of the close of business on the last day of the
Revolving Period and the denominator of which is equal to the Investor Interest
as of the close of business on such day. The "Collateral Fixed Allocation"
means, with respect to any Monthly Period, the percentage equivalent (which
percentage may never exceed 100%) of a fraction, the numerator of which is equal
to the Collateral Interest as of the close of business on the last day of the
Revolving Period and the denominator of which is equal to the Investor Interest
as of the close of business on such day.
The "Transferor Percentage" will, in all cases, be equal to 100% minus
the sum of the applicable Investor Percentage and the applicable investor
percentages with respect to all Series of investor certificates issued and
outstanding.
"Class A Investor Interest" for any date means an amount equal to (a)
the Class A Initial Investor Interest, minus (b) the aggregate amount of
principal payments made to the Class A Certificateholders prior to such date,
minus (c) the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs for all Transfer Dates prior to such date over the aggregate amount
of any reimbursements of Class A Investor Charge-Offs for all Transfer Dates
prior to such date; provided, however, that the Class A Investor Interest may
not be reduced below zero.
"Class B Investor Interest" for any date means an amount equal to (a)
the Class B Initial Investor Interest, minus (b) the aggregate amount of
principal payments made to the Class B Certificateholders prior to such date,
minus (c) the aggregate amount, if any, of Class B Investor Charge-Offs for all
Transfer Dates prior to such date, minus (d) the aggregate amount, if any, of
Reallocated Class B Principal Collections for all prior Transfer Dates with
respect to which the Collateral Interest has not been reduced, minus (e) the
aggregate amount, if any, by which the Class B Investor Interest has been
reduced to fund the Class A Investor Default Amount on all prior Transfer Dates,
plus (f) the aggregate amount of Excess Spread and Shared Finance Charge
Collections allocated and available on all prior Transfer Dates for the purpose
of reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and
(e); provided, however, that the Class B Investor Interest may not be reduced
below zero.
"Collateral Interest" for any date means an amount equal to (a) the
Initial Collateral Interest, minus (b) the aggregate amount of principal
payments made to the Collateral Interest Holder prior to such date, minus (c)
the aggregate amount, if any, of Collateral Interest Charge-Offs for all
Transfer Dates prior to such date, minus (d) the aggregate amount, if any, of
Reallocated Principal Collections for all prior Transfer Dates, minus (e) the
aggregate amount, if any, by which the Collateral Interest has been reduced to
fund the Class A Investor Default Amount and the Class B Investor Default Amount
on all prior Transfer Dates, plus (f) the aggregate amount of Excess Spread and
Shared Finance Charge Collections allocated and available on all prior Transfer
Dates for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (c), (d) and (e); provided, however, that the Collateral Interest may
not be reduced below zero.
"Class A Adjusted Investor Interest", for any date of determination,
means an amount equal to the then current Class A Investor Interest minus the
Principal Funding Account Balance, if any, on such date.
"Adjusted Investor Interest", for any date of determination, means an
amount equal to the sum of the Class A Adjusted Investor Interest, the Class B
Investor Interest and the Collateral Interest, in each case as of such date.
As a result of the calculations described above, Finance Charge
Collections received during any Monthly Period will generally be allocated to
the Certificateholders based on the relationship of the amount of the Investor
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Interest to the Aggregate Principal Receivables in the Trust (which may
fluctuate from month to month). As described above, during the Revolving Period
the Investor Percentage applied when allocating Principal Collections is
expected to vary from month to month because the Investor Interest as a
percentage of the Aggregate Principal Receivables in the Trust will fluctuate
from day to day. During the Controlled Accumulation Period and the Rapid
Amortization Period, however, the amount of Principal Collections allocated to
the Investor Interest each day will generally be equal to the Investor
Percentage with respect to Aggregate Principal Receivables on the last day of
the Revolving Period or as of the effective date of the most recent tender and
cancellation of Certificates pursuant to an Investor Exchange, if any, after the
commencement of the Controlled Accumulation Period or the Rapid Amortization
Period.
Excess Funding Account
At any time during which no Series is in an accumulation period or
amortization period (including any early amortization period), or for a Series
in an accumulation period or an amortization period, during which the principal
funding account, if any, is fully funded or amounts have otherwise been
deposited in an account established for the benefit of such Series sufficient to
pay the principal amount of such Series in full, and the Transferor Interest
does not exceed the Minimum Transferor Interest, funds (to the extent available
therefor as described herein) otherwise payable to the Holder of the
Exchangeable Transferor Certificate will be deposited in the Excess Funding
Account on any business day in an amount equal to the difference on such
business day between the Transferor Interest and the Minimum Transferor
Interest; provided, however, that to the extent the Transferor Interest has been
reduced below the Minimum Transferor Interest as a result of Receivables in
Defaulted Accounts (which are not Ineligible Receivables) allocated to the
Transferor Interest, no funds will be deposited in the Excess Funding Account in
respect of such reduction attributable to such Receivables in Defaulted
Accounts, as determined below. Funds on deposit in the Excess Funding Account
will be withdrawn and paid to the Holder of the Exchangeable Transferor
Certificate to the extent that on any day the Transferor Interest exceeds the
Minimum Transferor Interest as a result of the addition of new Receivables to
the Trust or allocated to one or more Series when they are in accumulation or
amortization periods (including any early amortization period). Such deposits in
and withdrawals from the Excess Funding Account may be made on a daily basis.
With respect to any date, to the extent that the Minimum Transferor Interest
exceeds the Transferor Interest due to the allocation of Principal Receivables
in any Defaulted Accounts to the Transferor Interest on such date, the
Transferor will not be required to make a deposit to the Excess Funding Account
with respect to the portion of such excess equal to the lesser of (i) the
product of the Principal Receivables in such Defaulted Accounts and the
Transferor Percentage on such date and (ii) the product of (a) the amount by
which the Minimum Transferor Interest exceeds the Transferor Interest and (b) a
percentage, the numerator of which is the Transferor Percentage of the Principal
Receivables in such Defaulted Accounts on such day and the denominator of which
is the Aggregate Principal Receivables at the end of the preceding date of
processing minus the Aggregate Principal Receivables on the current date prior
to the deposit of any amount in the Excess Funding Account.
Any funds on deposit in the Excess Funding Account at the beginning of
the Rapid Amortization Period for the Series will be paid to the
Certificateholders as a payment in respect of principal, and during the
Controlled Accumulation Period will be deposited in the Principal Funding
Account to the extent that the Available Investor Principal Collections
allocable to the Investor Interest are insufficient to deposit in to the
Principal Funding Account the applicable Controlled Deposit Amount.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee at the direction of the Transferor in Permitted Investments. On each
Distribution Date, all net investment income earned on amounts in the Excess
Funding Account since the preceding Distribution Date will be withdrawn from the
Excess Funding Account and applied as Collections in respect of Finance Charge
Receivables as described herein.
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Application of Collections
The Servicer will deposit into the Collection Account, no later than the
second business day following the date of processing, any payment collected by
the Servicer on the Receivables. Notwithstanding the foregoing, for as long as
(a) (i) the Servicer provides to the Trustee a letter of credit or other
arrangement covering risk of collection of the Servicer acceptable to the Rating
Agency and (ii) the Transferor and the Trustee shall have received a notice from
the Rating Agency that such letter of credit or other arrangement would not
result in the lowering or withdrawal of such Rating Agency's then-existing
rating of any Series of certificates or (b) People's Bank remains the Servicer
under the Agreement, if People's Bank or any of its affiliates in which the
Collection Account is maintained has and maintains a certificate of deposit
rating of P-1 by Moody's and of A-1 by Standard & Poor's and deposit insurance
as required by law and the FDIC, then the Servicer need not deposit collections
on the day indicated in the preceding sentence but may use for its own benefit
all such collections until the related Transfer Date at which time the Servicer
will make such deposits in an amount equal to the net amount of such deposits
and payments which would have been made had the conditions of this proviso not
applied.
Throughout the existence of the Trust, on each business day the Servicer
shall allocate and pay to the Holder of the Exchangeable Transferor Certificate,
an amount equal to the Transferor Percentage of the aggregate amount of
Collections allocable to Principal Collections and Finance Charge Collections in
respect of such business day.
On each business day, the Servicer will withdraw the following amounts
from the Collection Account for application as indicated:
(a) an amount equal to the applicable Floating Investor Percentage of
the aggregate amount of such deposits in respect of Finance Charge Collections
will be deposited into the Finance Charge Account;
(b) during the Revolving Period, an amount equal to the applicable
Floating Investor Percentage of the aggregate amount of such deposits in respect
of Principal Collections, up to an amount by which the Collateral Interest
exceeds the Required Collateral Interest as of such day (such excess, the
"Collateral Interest Surplus"), will be deposited in the Principal Account. On
any business day when the amount on deposit in the Principal Account exceeds the
applicable Collateral Interest Surplus, such excess will be treated as Shared
Principal Collections and applied as such;
(c) during the Controlled Accumulation Period, an amount equal to the
sum of (i) the applicable Fixed Investor Percentage of the aggregate amount of
such deposits in respect of Principal Collections, together with certain amounts
treated as Principal Collections, including amounts applied with respect to
Investor Default Amounts and Investor Charge-Offs (collectively, the "Principal
Allocation"), (ii) any amount of Shared Principal Collections and (iii) amounts
withdrawn from the Excess Funding Account allocated to the Certificates will be
deposited in the Principal Account, up to, during any Monthly Period, an amount
equal to the sum of the applicable Controlled Deposit Amount and the applicable
Collateral Interest Surplus. On any business day when the amount on deposit in
the Principal Account exceeds the sum of the applicable Controlled Deposit
Amount for the Certificates and the applicable Collateral Interest Surplus, such
excess will be treated as Shared Principal Collections and applied as such; and
(d) during the Rapid Amortization Period, if any, an amount equal to the
applicable Fixed Investor Percentage of the aggregate amount of such deposits in
respect of Principal Collections, any amount of Shared Principal Collections and
any amounts withdrawn from the Excess Funding Account allocated to the
Certificates, up to the amount of the Investor Interest, will be deposited into
the Principal Account.
During any Monthly Period, Shared Principal Collections will be
allocated to each outstanding Series pro rata based on the amount of the
shortfall in deposits in respect of Principal Collections to cover amounts
payable to the certificateholders of any Series and, as applicable, to holders
of other related undivided interests in the Trust
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out of Collections in respect of Principal Receivables. The Servicer will pay
any remaining Shared Principal Collections on such business day to the Holder of
the Exchangeable Transferor Certificate (so long as the Transferor Interest
exceeds the Minimum Transferor Interest).
Any Shared Principal Collections and other amounts not paid to the
Transferor because the Transferor Interest on any date, after giving effect to
the inclusion in the Trust of all Receivables on or prior to such date and the
application of all prior payments to the Transferor, does not exceed the Minimum
Transferor Interest, together with any adjustment payments (as described in the
third paragraph of "--Defaulted Receivables; Adjustments and Fraudulent Charges"
below), will be deposited into and held in the Excess Funding Account, and on
the commencement of the Amortization Period with respect to any Series, such
amounts will be deposited in the Principal Account of such Series to the extent
specified in the related Supplement until the holders of certificates of such
Series have been paid in full. "Amortization Period", with respect to any
Series, refers to the period following the related Revolving Period, which will
be the early amortization period, the rapid amortization period, the
accumulation period, the controlled amortization period, or such other
amortization or accumulation period, in each case as defined, as applicable,
with respect to such Series in the related Series Supplement. Any proceeds from
any repurchase of the certificates occurring in connection with a Service
Transfer and the proceeds of any sale, disposition or liquidation of Receivables
following the occurrence of a Pay Out Event caused by the appointment of a
receiver or conservator for the Transferor or in connection with the termination
of the Trust will be deposited into the Collection Account immediately upon
receipt and will be allocated as Principal Collections or Finance Charge
Collections, as applicable.
Allocation of Funds
Payment of Fees, Interest and Other Items. On each Transfer Date (except
as noted below), the Servicer or the Trustee, acting pursuant to the Servicer's
instructions, will withdraw all amounts on deposit in the Finance Charge Account
in respect of allocations of Finance Charge Receivables during the immediately
preceding Monthly Period and make the following payments and deposits in the
following order:
(i) An amount equal to the Class A Available Funds with respect to such
Transfer Date will be distributed in the following priority:
(a) an amount equal to the sum of (x) an amount equal to the
product of (i) the lesser of the Class A Certificate Rate and the Class A Cap
Rate (or % for the Initial Interest Period), (ii) the Class A Adjusted Investor
Interest determined as of the preceding Distribution Date or, for the Initial
Interest Period, the Closing Date (after giving effect to all payments, deposits
and withdrawals made on such Distribution Date or Closing Date) and (iii) the
actual number of days in the related Interest Period or the Initial Interest
Period divided by 360 (the "Class A Cap Rate Interest") and (y) the Class A
Covered Amount for the related Interest Period plus any overdue Class A Monthly
Cap Rate Interest and Class A Coverage Amount in respect of which a distribution
to Class A Certificateholders has not been made, will be deposited in the
Distribution Account for distribution to Class A Certificateholders on the next
succeeding Distribution Date;
(b) an amount equal to the Class A Monthly Servicing Fee for the
preceding Monthly Period and any accrued and unpaid Class A Monthly Servicing
Fees will be paid to the Servicer;
(c) an amount equal to the Class A Investor Default Amount for
the preceding Monthly Period will be treated as Principal Collections and will
be applied on such Transfer Date in accordance with "--Payments of Principal"
below;
(d) an amount equal to the unreimbursed Class A Investor
Charge-Offs will be treated as Principal Collections and will be applied on such
Transfer Date in accordance with "--Payments of Principal" below; and
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(e) the balance, if any, will constitute a portion of Excess
Spread and will be allocated and distributed as described below.
The excess of the Class A Monthly Interest over the sum of the Class A
Monthly Cap Rate Interest and the Class A Coverage Amount will be funded from
and to the extent of payments made pursuant to the Class A Interest Rate Cap and
from Excess Spread.
(ii) An amount equal to the Class B Available Funds with respect to such
Transfer Date will be distributed in the following priority:
(a) an amount equal to the product of (i) the lesser of the Class
B Certificate Rate and the Class B Cap Rate (or % for the Initial Interest
Period) (ii) the Class B Investor Interest determined as of the preceding
Distribution Date or, for the Initial Interest Period, the Closing Date (after
giving effect to all payments, deposits and withdrawals made on such
Distribution Date or Closing Date) and (iii) the actual number of days in the
related Interest Period or the Initial Interest Period divided by 360 ("Class B
Monthly Cap Rate Interest"), plus any overdue Class B Monthly Cap Rate Interest
in respect of which a distribution to Class B Certificateholders has not been
made, will be deposited in the Distribution Account for distribution to Class B
Certificateholders on the next succeeding Distribution Date;
(b) an amount equal to the Class B Monthly Servicing Fee for the
preceding Monthly Period and any accrued and unpaid Class B Monthly Servicing
Fees will be paid to the Servicer;
(c) an amount equal to the Class B Investor Default Amount for
the preceding Monthly Period will be treated as Principal Collections and will
be applied on such Transfer Date in accordance with "--Payments of Principal"
below;
(d) an amount equal to the unreimbursed Class B Investor
Charge-Offs will be treated as Principal Collections and (other than those
amounts treated as Reallocated Principal Collections) will be applied on such
Transfer Date in accordance with "--Payments of Principal" below; and
(e) the balance, if any, will constitute a portion of Excess
Spread and will be allocated and distributed as described below.
The excess of the Class B Monthly Interest over the Class B Monthly Cap
Rate Interest will be funded from and to the extent of payments made pursuant to
the Class B Interest Rate Cap and from Excess Spread.
(iii) An amount equal to the Collateral Available Funds with respect to
such Transfer Date will be distributed in the following priority:
(a) an amount equal to the Collateral Interest Monthly Servicing
Fee for the preceding Monthly Period and any accrued and unpaid Collateral
Interest Servicing Fees will be paid to the Servicer; and
(b) the balance, if any, will constitute a portion of Excess
Spread and will be allocated and distributed as described below.
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class A Floating Allocation of Finance Charge
Collections allocated to the Investor Interest and deposited in the Finance
Charge Account with respect to such Monthly Period, (b) Principal Funding
Investment Proceeds, if any, with respect to the related Transfer Date and (c)
amounts, if any, to be withdrawn from the Reserve Account which are required to
be included in Class A Available Funds pursuant to the Series 1997-1 Supplement
with respect to such Transfer Date. "Class B Available Funds" means, with
respect to any Monthly Period, an amount equal to the Class B Floating
Allocation of Finance Charge Collections allocated to the Investor Interest and
deposited
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in the Finance Charge Account with respect to such Monthly Period. "Collateral
Available Funds" means, with respect to any Monthly Period, an amount equal to
the Collateral Floating Allocation of Finance Charge Collections allocated to
the Investor Interest with respect to such Monthly Period.
"Excess Spread" on each Transfer Date will equal the sum of (a) the
excess of the Class A Available Funds over the Class A Payment Amounts and (b)
the excess of the Class B Available Funds over the Class B Payment Amount, and
(c) the excess of the Collateral Available Funds over the aggregate amount of
the Collateral Interest Monthly Servicing Fees payable on such Transfer Date.
Excess Spread. On each Transfer Date, the Servicer or the Trustee,
acting pursuant to the Servicer's instructions, will apply Excess Spread with
respect to the preceding Monthly Period and make the following payments and
deposits in the following priority:
(a) an amount equal to the Class A Required Amount will be used to pay
such Class A Required Amount and will be applied and distributed in accordance
with the priorities described in clauses (i)(a) through (i)(d) above under
"--Payment of Interest, Fees and Other Items";
(b) an amount equal to the Class B Required Amount will be used to pay
such Class B Required Amount and will be applied and distributed in accordance
with the priorities described in clauses (ii)(a) through (ii)(d) above under
"--Payment of Interest, Fees and Other Items";
(c) an amount equal to the amount of any accrued and unpaid interest on
any overdue Class A Monthly Interest, calculated on the basis of (x) a default
rate of interest equal to the Class A Certificate Rate plus 0.5% and (y) the
actual number of days such Class A Monthly Interest is or was at any time
overdue, divided by 360, will be deposited in the Distribution Account for
distribution to Class A Certificateholders on the next succeeding Distribution
Date;
(d) an amount equal to the amount of any accrued and unpaid interest on
any overdue Class B Monthly Interest, calculated on the basis of (x) a default
rate of interest equal to the Class B Certificate Rate plus 0.5% and (y) the
actual number of days such Class B Monthly Interest is or was at any time
overdue, divided by 360, will be deposited in the Distribution Account for
distribution to Class B Certificateholders on the next succeeding Distribution
Date;
(e) an amount equal to any unreimbursed reductions in the Class B
Investor Interest in connection with the payment of the Class A Required Amount
will be applied to reinstate the Class B Investor Interest and will be treated
as Principal Collections and applied on such Transfer Date in accordance with
"--Payments of Principal" below;
(f) an amount equal to the product of (i) an amount equal to LIBOR plus
% per annum (or % for the Initial Interest Period), or such lesser amount as may
be designated in the Loan Agreement (the "Collateral Rate"), (ii) the Collateral
Interest determined as of the last day of the preceding Monthly Period or, for
the Initial Interest Period, the Closing Date (after giving effect to all
payments, deposits and withdrawals made on such date), and (iii) the actual
number of days in the related Interest Period or the Initial Interest Period
divided by 360 (the "Collateral Monthly Interest"), plus any overdue Collateral
Monthly Interest in respect of which a distribution to the Collateral Interest
Holder has not been made, will be distributed to the Collateral Interest Holder
in accordance with the Loan Agreement;
(g) an amount equal to the amount by which the Class A Monthly Interest
for the preceding Interest Period exceeds the Class A Monthly Cap Rate Interest
(other than Class A Excess Interest), to the extent such amount is not paid by
the Interest Rate Cap Provider pursuant to the Class A Interest Rate Cap, and
any such accrued and
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unpaid amounts for prior Interest Periods, will be deposited in the Distribution
Account for distribution to Class A Certificateholders on the next succeeding
Distribution Date;
(h) an amount equal to the amount by which the Class B Monthly Interest
for the preceding Interest Period exceeds the Class B Monthly Cap Rate Interest
(other than Class B Excess Interest), to the extent such amount is not paid by
the Interest Rate Cap Provider pursuant to the Class B Interest Rate Cap, and
any such accrued and unpaid amounts for prior Interest Periods, will be
deposited in the Distribution Account for distribution to Class B
Certificateholders on the next succeeding Distribution Date;
(i) an amount equal to the aggregate Collateral Default Amount for the
preceding Monthly Period will be treated as Principal Collections and will be
applied on such Transfer Date in accordance with "--Payments of Principal"
below;
(j) an amount equal to any unreimbursed reductions in the Collateral
Interest for reasons other than payment of principal to the Collateral Interest
Holder will be applied to reinstate the Collateral Interest and will be treated
as Principal Collections and applied on such Transfer Date in accordance with
"--Payments of Principal" below;
(k) on each Transfer Date from and after the Reserve Account Funding
Date, but prior to the date on which the Reserve Account terminates as described
under "--Reserve Account," an amount up to the excess, if any, of the Required
Reserve Account Amount over the Available Reserve Account Amount will be
deposited into the Reserve Account;
(l) any other amounts due and payable under the Loan Agreement will be
applied and distributed in accordance with and to the extent specified in the
Loan Agreement;
(m) an amount equal to the amount of any Class A Excess Interest
accruing during the related Interest Period;
(n) an amount equal to the amount of any Class B Excess Interest
accruing during the related Interest Period;
(o) the balance, if any, will constitute Shared Finance Charge
Collections, to be applied and distributed as described below in "--Shared
Finance Charge Collections";
(p) any amounts remaining after application as Shared Finance Charge
Collections will be applied to the payment of other accrued and unpaid expenses
of the Trust, if any; and
(q) any amounts remaining after application as Shared Finance Charge
Collections and to expenses of the Trust, if any, will be paid to the Holder of
the Exchangeable Transferor Certificate.
Shared Finance Charge Collections. Shared Finance Charge Collections
derived from Excess Spread will be applied to cover any shortfalls with respect
to amounts payable from Finance Charge Collections allocable to any other Series
then outstanding. Any such Shared Finance Charge Collections remaining after
covering shortfalls with respect to all outstanding Series will be distributed
to the Holder of the Exchangeable Transferor Certificate. Any amounts designated
as Shared Finance Charge Collections pursuant to Supplements for any other
Series and allocable to the Certificates will be applied first, to the extent of
any shortfalls in the amount available from the Finance Charge Account, to make
the payments and deposits described in clauses (i)(a) through (i)(d) above under
"--Payments of Fees, Interest and Other Items", second, to make the payments and
deposits described in clauses (ii)(a) through (ii)(d) above under "--Payments of
Fees, Interest and Other Items", third, to make the payment described in clause
(iii)(a) above under "--Payments of Fees, Interest and Other Items", fourth, to
reimburse any reductions in the Class B Investor Interest arising in connection
with the payment of the Class A Required Amount,
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fifth, to pay the Collateral Monthly Interest and sixth, to make the payments
described above in clauses (g), (h), (i) and (j) of "--Excess Spread" and
thereafter paid to the Holder of the Exchangeable Transferor Certificate. If the
amount on deposit in the Finance Charge Account with respect to the allocations
of Finance Charge Receivables during the preceding Monthly Period and any
amounts designated as Shared Finance Charge Collections pursuant to the
Supplements for any other Series and allocable to the Certificates are
insufficient to make any of the payments or deposits specified in clauses (i)(a)
through (i)(d) and (ii)(a) through (ii)(d) above under "--Payments of Fees,
Interest and Other Items", the Trustee, acting pursuant to the Servicer's
instructions, will apply Principal Collections allocated to the Collateral
Interest as Reallocated Principal Collections on the Transfer Date, first to
cover any remaining Class A Required Amount and second to cover any Class B
Required Amount, and if the Reallocated Collateral Principal Collections on such
Transfer Date are less than the remaining Class A Required Amount, to apply
Principal Collections allocated to the Class B Certificates as Reallocated
Principal Collections on the Transfer Date to cover any remaining Class A
Required Amount. See "--Reallocation of Cash Flows".
Payments of Principal. On each Transfer Date, the Servicer or the
Trustee, acting pursuant to the Servicer's instructions, will distribute
Available Investor Principal Collections on deposit in the Principal Account in
the following priority:
(i) On each Transfer Date with respect to the Revolving Period:
(a) an amount equal to the Collateral Monthly Principal will be
paid to the Collateral Interest Holder in accordance with the Loan Agreement;
and
(b) the balance, if any, will constitute Shared Principal
Collections and will be allocated and distributed as described below under
"--Shared Principal Collections";
(ii) On each Transfer Date with respect to the Controlled Accumulation
Period (beginning on the first Transfer Date following the Monthly Period in
which the Controlled Accumulation Period commences):
(a) prior to the Class A Scheduled Payment Date, an amount equal
to the Controlled Deposit Amount will be deposited in the Principal Funding
Account, and on the Transfer Date immediately preceding the Class A Scheduled
Payment Date the aggregate amount on deposit in the Principal Funding Account
will be deposited in the Distribution Account for distribution to the Class A
Certificateholders on the Class A Scheduled Payment Date;
(b) for each Transfer Date after the Class A Investor Interest
has been paid in full, an amount equal to the Class B Monthly Principal for such
Transfer Date will be distributed to the Class B Certificateholders;
(c) on each Transfer Date with respect to the Controlled
Accumulation Period in which a reduction in the Required Collateral Interest has
occurred, an amount equal to the Collateral Interest Surplus will be paid to the
Collateral Interest Holder in accordance with the Loan Agreement; and
(d) the balance, if any, will constitute Shared Principal
Collections and will be allocated and distributed as described below under
"--Shared Principal Collections";
(iii) On each Transfer Date with respect to the Rapid Amortization
Period (beginning on the first Transfer Date following the Monthly Period in
which the Rapid Amortization Period commences):
(a) an amount equal to Class A Investor Interest will be
deposited in the Distribution Account for distribution to the Class A
Certificateholders on the next succeeding Distribution Date;
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(b) after the Class A Investor Interest has been paid in full, an
amount equal to the Class B Investor Interest will be deposited in the
Distribution Account for distribution to the Class B Certificateholders on the
next succeeding Distribution Date;
(c) after the Class B Investor Interest has been paid in full, an
amount equal to the Collateral Interest Surplus will be paid to the Collateral
Interest Holder in accordance with the Loan Agreement; and
(d) the balance, if any, will constitute Shared Principal
Collections and will be allocated and distributed as described below under
"--Shared Principal Collections".
"Class A Monthly Principal" with respect to any Transfer Date relating
to the Controlled Accumulation Period or the Rapid Amortization Period, prior to
the payment in full of the Class A Investor Interest, will equal the least of
(i) Available Investor Principal Collections on deposit in the Principal Account
with respect to such Transfer Date, (ii) for each Transfer Date with respect to
the Controlled Accumulation Period, prior to the Class A Scheduled Payment Date,
the applicable Controlled Deposit Amount for such Transfer Date and (iii) the
Class A Adjusted Investor Interest prior to any deposits on such Transfer Date.
"Class B Monthly Principal" with respect to the Transfer Date relating
to the Controlled Accumulation Period immediately following the Class A
Scheduled Payment Date, or with respect to any Transfer Date relating to the
Rapid Amortization Period, beginning with the Transfer Date on which the Class A
Investor Interest has been paid in full (after taking into account payments to
be made on the related Distribution Date), will equal the least of (i) Available
Investor Principal Collections on deposit in the Principal Account (minus the
portion of such Available Investor Principal Collections applied to Class A
Monthly Principal on such Transfer Date) and (ii) the Class B Investor Interest
for such Transfer Date.
"Collateral Monthly Principal" means (a) with respect to any Transfer
Date relating to the Revolving Period following any reduction of the Required
Collateral Interest effected as described in clause (3) of the proviso in the
definition of "Required Collateral Interest", an amount equal to the lesser of
(i) the excess, if any, of the Collateral Interest (after giving effect to
reductions for any Collateral Interest Charge-Offs and Reallocated Principal
Collections on such Transfer Date and after giving effect to any further
adjustments thereto for the benefit of the Class A Certificateholders and the
Class B Certificateholders on such Transfer Date) over the Required Collateral
Interest on such Transfer Date, and (ii) the Available Investor Principal
Collections on such Transfer Date or (b) with respect to any Transfer Date
relating to the Controlled Accumulation Period prior to repayment in full of the
Class A Investor Interest an amount equal to the lesser of (i) the excess, if
any, of the Collateral Interest (after giving effect to reductions for any
Collateral Interest Charge-Offs and Reallocated Principal Collections on such
Transfer Date and after giving effect to any further adjustments thereto for the
benefit of the Class A Certificateholders and the Class B Certificateholders on
such Transfer Date) over the Required Collateral Interest on such Transfer Date,
and (ii) the Available Investor Principal Collections remaining after
allocations to the Offered Certificates on such Transfer Date or (c) with
respect to any Transfer Date relating to the Controlled Accumulation Period or
the Rapid Amortization Period, beginning with the Transfer Date on which the
Class B Investor Interest has been paid in full (after taking into account
payments to be made on the related Distribution Date), an amount equal the least
of (i) Available Investor Principal Collections on deposit in the Principal
Account (minus the portion of such Available Investor Principal Collections
applied to Class A Monthly Principal and Class B Monthly Principal on such
Transfer Date) and (ii) the Collateral Interest for such Transfer Date.
Shared Principal Collections. Principal Collections for any Monthly
Period allocated to the Investor Interest will first be used to cover, with
respect to any Monthly Period during the Controlled Accumulation Period,
deposits of the Controlled Deposit Amount to the Principal Funding Account with
respect to the Class A Certificates or of the Class B Investor Interest to the
Distribution Account with respect to the Class B Certificates, and during the
Rapid Amortization Period, the deposit of the Class A Investor Interest and the
Class B Investor Interest to the Distribution Account, and then under certain
circumstances payments to the Collateral Interest Holder, in each case
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as described above. The Servicer will determine the amount of Principal
Collections for any Monthly Period allocated to the Investor Interest remaining
after covering required payments to the Certificateholders and any similar
amount remaining for any other Series. The Servicer will allocate Shared
Principal Collections derived from Principal Collections allocated to the
Investor Interest to cover any scheduled or permitted principal distributions to
certificateholders of other Series and to holders of other undivided interests
in the Trust, and deposits to principal funding accounts, if any, for any other
Series entitled thereto which have not been covered out of the Principal
Collections allocable to such Series and out of certain other amounts for such
Series ("Principal Shortfalls"). If Principal Shortfalls exceed Shared Principal
Collections for any Monthly Period, Shared Principal Collections will be
allocated pro rata among the applicable Series based on the relative amounts of
Principal Shortfalls. To the extent that Shared Principal Collections exceed
Principal Shortfalls, the balance will be paid to the holder of the Exchangeable
Transferor Certificate or, under certain circumstances, deposited into the
Excess Funding Account. Any amounts designated as Shared Principal Collections
pursuant to Supplements for any other Series and allocable to the Certificates
will be applied as described in "--Payments of Principal" above.
Reallocation of Cash Flows
On each Distribution Date during the Revolving Period, the Controlled
Accumulation Period and the Rapid Amortization Period, if any, the Servicer will
determine the Class A Required Amount and the Class B Required Amount. If either
or both of the Required Amounts are greater than zero after application of
available Finance Charge Collections, Excess Spread, and Shared Finance Charge
Collections, then Principal Collections allocable to the Collateral Interest
will be reallocated and applied first to fund the remaining Class A Required
Amount, if any, and second to fund to the remaining Class B Required Amount, if
any, and to the extent that Reallocated Collateral Principal Collections are
less than such remaining Class A Required Amount, Principal Collections
allocable to the Class B Certificates will then be reallocated and applied to
fund the remaining Class A Required Amount. The Collateral Interest will be
reduced by the amount of Reallocated Collateral Principal Collections and
Reallocated Class B Principal Collections applied to fund the Required Amounts.
The Class B Investor Interest will be reduced by the amount of Reallocated Class
B Principal Collections in excess of the Collateral Interest (after giving
effect to reductions for any Collateral Interest Charge-Offs and any Reallocated
Collateral Principal Collections as of the related Distribution Date) applied to
fund the Class A Required Amount.
"Class A Required Amount" for any date means the amount, if any, by which the
Class A Available Funds with respect to the related Monthly Period are
insufficient to pay the Class A Payment Amount for the related date.
"Class A Payment Amount" for any date means the aggregate of (i) the Class A
Monthly Cap Rate Interest with respect to the related Distribution Date and any
Class A Monthly Cap Rate Interest accrued during any prior period and not
distributed to the Class A Certificateholders, (ii) the Class A Coverage Amount
and any Class A Coverage Amount accrued during and prior period and not
distributed to the Class B Certificateholders, (iii) the Class A Monthly
Servicing Fee with respect to the related Distribution Date and any accrued and
unpaid Class A Monthly Servicing Fees from prior Monthly Periods, (iv) the Class
A Investor Default Amount for the related Monthly Period, and (v) unreimbursed
Class A Investor Charge-Offs.
"Class B Required Amount" for any date means the amount, if any, by which the
Class B Available Funds for any Monthly Period are insufficient to pay the Class
B Payment Amount.
"Class B Payment Amount" for any date means the aggregate of (i) the Class B
Monthly Cap Rate Interest with respect to the related Distribution Date, and any
Class B Monthly Cap Rate Interest accrued during any prior period which has not
been distributed to the Class B Certificateholders, (ii) the Class B Monthly
Servicing Fee with respect to the related Distribution Date and any accrued and
unpaid Class B Monthly Servicing Fees from prior Monthly Periods, (iii) the
Class B Investor Default Amount for the related Monthly Period, and (iv)
unreimbursed Class B Investor Charge-Offs.
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"Required Amounts" for any date means the Class A Required Amount and the Class
B Required Amount, collectively.
Principal Collections allocable to the Collateral Interest and the Class
B Certificates for the purpose of determining Collections available to be
applied as Reallocated Principal Collections will be determined (i) for any
Monthly Period during the Revolving Period by multiplying the Collateral
Floating Allocation or the Class B Floating Allocation, as the case may be, by
the applicable Floating Investor Percentage of Principal Collections for such
Monthly Period, and (ii) for any Monthly Period during the Controlled
Accumulation Period or the Rapid Amortization Period, if any, by multiplying the
Collateral Fixed Allocation or the Class B Fixed Allocation, as the case may be,
by the applicable Fixed Investor Percentage of Principal Collections for such
Monthly Period, and in each case adding certain other amounts treated as
Principal Collections (including amounts applied with respect to Investor
Default Amounts and Investor Charge-Offs).
Any reductions of the Class B Investor Interest or of the Collateral
Interest, if reduced to an amount less than the Required Collateral Interest,
due to payment of the Class A Required Amount or, with respect to the Collateral
Interest, payment of the Class B Required Amount, will thereafter be reimbursed
and the Class B Investor Interest and the Collateral Interest, as the case may
be, increased on each Distribution Date by the amount, if any, of Excess Spread
and any Shared Finance Charge Collections from other Series available for that
purpose (in the case of the Collateral Interest, up to the Required Collateral
Interest).
"Reallocated Class B Principal Collections" for any Monthly Period means
Principal Collections allocable to the Class B Investor Interest for the related
Monthly Period in an amount not to exceed the amount applied to fund the Class A
Required Amount, if any; provided, however, that such amount will not exceed the
Class B Investor Interest after giving effect to any Class B Investor
Charge-Offs for the related Transfer Date.
"Reallocated Collateral Principal Collections" for any Monthly Period means
Principal Collections allocable to the Collateral Interest for the related
Monthly Period in an amount not to exceed the amount applied to fund the Class A
Required Amount and the Class B Required Amount, if any; provided, however, that
such amount will not exceed the Collateral Interest after giving effect to any
Collateral Investor Charge-Offs for the related Transfer Date.
"Reallocated Principal Collections" for any date means Reallocated Class B
Principal Collections and Reallocated Collateral Principal Collections, for such
date, collectively.
Defaulted Receivables; Adjustments and Fraudulent Charges
On the eighth business day of each month but not later than the tenth
calendar day (and if such day is not a business day, the preceding business day)
(such date, a "Determination Date"), the Servicer will calculate the Class A
Investor Default Amount, the Class B Investor Default Amount and the Collateral
Default Amount for the preceding Monthly Period. The terms "Class A Investor
Default Amount", "Class B Investor Default Amount" and "Collateral Default
Amount" mean, respectively, for any Monthly Period, the product of (a) the Class
A Floating Allocation, the Class B Floating Allocation or the Collateral
Floating Allocation, as the case may be, determined as of the end of the Monthly
Period, (b) the Floating Investor Percentage for Receivables in Defaulted
Accounts and (c) the amount of Defaulted Receivables for such Monthly Period
(the sum of the Class A Investor Default Amount, the Class B Investor Default
Amount and the Collateral Default Amount being sometimes referred to as the
"Investor Default Amount"). The term "Defaulted Receivables" means, for any
Monthly Period, Receivables which in such Monthly Period were written off as
uncollectible in accordance with the Servicer's policies and procedures for
servicing credit card receivables comparable to the Receivables.
On each Determination Date, if the Class A Investor Default Amount
exceeds the amount of Excess Spread, Shared Finance Charge Collections and
Reallocated Principal Collections which are allocated and available to fund such
amount with respect to the Monthly Period immediately preceding such
Determination Date, the Collateral Interest (after giving effect to reductions
for any Collateral Interest Charge-Offs and any Reallocated Principal
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Collections as of the related Distribution Date) will be reduced by the amount
of such excess (but not by more than the Class A Investor Default Amount for
such Monthly Period). In the event that such reduction would cause the
Collateral Interest to be a negative number, the Collateral Interest will be
reduced to zero, and the Class B Investor Interest (after giving effect to
reductions for any Class B Investor Charge-Offs and any Reallocated Class B
Principal Collections in excess of the Collateral Interest as of such
Distribution Date) will be reduced by the amount by which the Collateral
Interest would have been reduced below zero. In the event that such reduction
would cause the Class B Investor Interest to be a negative number, the Class B
Investor Interest will be reduced to zero, and the Class A Investor Interest
will be reduced by the amount by which the Class B Investor Interest would have
been reduced below zero (a "Class A Investor Charge-Off"), which will have the
effect of slowing or reducing the return of principal and interest to the Class
A Certificateholders. If the Class A Investor Interest has been reduced by the
amount of any Class A Investor Charge-Offs, it will be reimbursed on any
Transfer Date (but not by an amount in excess of the aggregate Class A Investor
Charge-Offs) by the amount of collections of Finance Charge Receivables, Excess
Spread and Shared Finance Charge Collections allocated and available for such
purpose as described under "--Allocation of Funds."
On each Determination Date, if the Class B Investor Default Amount
exceeds the amount of Excess Spread, Shared Finance Charge Collections and
Reallocated Collateral Principal Collections which are allocated and available
to fund such amount with respect to the Monthly Period preceding such
Determination Date, the Collateral Interest (after giving effect to reductions
for any Collateral Interest Charge-Offs and any Reallocated Principal
Collections as of the related Distribution Date and after giving effect to any
adjustments with respect thereto as described in the preceding paragraph) will
be reduced by the amount of such excess (but not by more than the Class B
Investor Default Amount for such Monthly Period). In the event that such
reduction would cause the Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero and the Class B Investor Interest
will be reduced by the amount by which the Collateral Interest would have been
reduced below zero (a "Class B Investor Charge-Off"). The Class B Investor
Interest will also be reduced by the amount of Reallocated Class B Principal
Collections in excess of the Collateral Interest (after giving effect to
reductions for any Collateral Interest Charge-Offs and any Reallocated
Collateral Principal Collections as of the related Distribution Date) and the
amount of any portion of the Class B Investor Interest allocated to the Class A
Certificates to avoid a reduction in the Class A Investor Interest. The Class B
Investor Interest will thereafter be reimbursed (but not in excess of the unpaid
principal balance of the Class B Certificates) on any Transfer Date by the
amount of Excess Spread and Shared Finance Charge Collections allocated and
available for that purpose as described under "--Allocation of Funds".
On each Determination Date, if the Collateral Default Amount exceeds the
amount of Excess Spread and Shared Finance Charge Collections which are
allocated and available to fund such amount with respect to the Monthly Period
preceding such Determination Date, the Collateral Interest will be reduced by
the amount of such excess but not more than the lesser of the Collateral Default
Amount and the Collateral Interest for such Transfer Date (a "Collateral
Interest Charge-Off"). The Collateral Interest will also be reduced by the
amount of Reallocated Collateral Principal Collections and the amount of any
portion of the Collateral Interest allocated to the Class A Certificates to
avoid a reduction in the Class A Investor Interest or to the Class B
Certificates to avoid a reduction in the Class B Investor Interest. The
Collateral Interest will thereafter be reimbursed on any Transfer Date by the
amount of Excess Spread allocated and available for that purpose as described
under "--Allocation of Funds". An "Investor Charge-Off" means a Class A Investor
Charge-Off, a Class B Investor Charge-Off or a Collateral Interest Charge-Off,
as the context requires.
The Servicer shall be obligated to reduce on a net basis at the end of
each Monthly Period the aggregate amount of Principal Receivables (i) created in
respect of merchandise refused or returned by the obligor thereunder or as to
which the obligor thereunder has asserted a counterclaim or defense, (ii)
reduced by the Servicer by any charge-back or other principal adjustment, (iii)
created as a result of a fraudulent or counterfeit charge, (iv) resulting from
adjustments relating to returned or dishonored checks, or (v) resulting from
Servicer error. The Interest will be reduced by the amount of any such
adjustment; provided, however, that if the Transferor Interest would be reduced
below the Minimum Transferor Interest by virtue of any such adjustment, the
holder of the Exchangeable
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Transferor Certificate will be required to make an adjustment payment to be
deposited to the Excess Funding Account in an amount equal to the amount by
which the Transferor Interest would have been reduced below the Minimum
Transferor Interest.
Required Collateral Interest
The "Required Collateral Interest" with respect to any Transfer Date
means (i) initially, the Initial Collateral Interest and (ii) thereafter on each
Transfer Date an amount equal to [ ]% of the sum of the Class A Adjusted
Investor Interest and the Class B Investor Interest on such Transfer Date, after
taking into account all deposits into the Principal Funding Account on such
Transfer Date and all payments to be made on the related Distribution Date after
all adjustments made on such Transfer Date, but not less than $[ ]; provided,
however, that (1) if certain reductions in the Collateral Interest are made or
if a Pay Out Event occurs, the Required Collateral Interest for such Transfer
Date shall equal the Required Collateral Interest for the Transfer Date
immediately preceding the occurrence of such reduction or Pay Out Event, (2) in
no event shall the Required Collateral Interest exceed the unpaid principal
amount of the Offered Certificates as of the last day of the Monthly Period
preceding such Transfer Date, less cash held in the Principal Funding Account as
of such Transfer Date, after taking into account deposits and payments to be
made on the related Distribution Date and (3) the Required Collateral Interest
may be reduced to a lesser amount at any time upon written confirmation from the
Rating Agency that such reduction will not result in the Rating Agency reducing
or withdrawing its rating on any then outstanding Series rated by it.
Reserve Account
Pursuant to the Series 1997-1 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Class A Certificateholders (the "Reserve Account"). The Reserve
Account is established to assist with the subsequent distribution of interest on
the Class A Certificates during the Controlled Accumulation Period. On each
Transfer Date from and after the Reserve Account Funding Date, but prior to the
termination of the Reserve Account, the Trustee, acting pursuant to the
Servicer's instructions, will apply Excess Spread allocated to the Offered
Certificates (to the extent described below under "--Allocation of Funds--Excess
Spread") to increase the amount on deposit in the Reserve Account (to the extent
such amount is less than the Required Reserve Account Amount). The "Reserve
Account Funding Date" will be the Transfer Date with respect to the Monthly
Period which commences no later than [ ] months prior to the commencement of the
Controlled Accumulation Period, or such earlier date as the Servicer may
determine. The "Required Reserve Account Amount" for any Transfer Date on or
after the Reserve Account Funding Date will be equal to (a) [ ]% of the
outstanding principal balance of the Class A Certificates or (b) any other
amount designated by the Transferor; provided that if such designation is of a
lesser amount, the Transferor shall have provided the Servicer, the Collateral
Interest Holder and the Trustee with written confirmation from the Rating Agency
that such designation will not result in a reduction or withdrawal of the Rating
Agency's rating on any then outstanding Series rated by the Rating Agency and
the Transferor shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at such time, in the reasonable belief of the Transferor, such designation will
not cause a Pay Out Event to occur and will not cause an event that, after the
giving of notice or the lapse of time, would cause a Pay Out Event to occur with
respect to Series 1997-1. On each Transfer Date, after giving effect to any
deposit to be made to, and any withdrawal to be made from, the Reserve Account
on such Transfer Date, the Trustee will withdraw from the Reserve Account an
amount equal to the excess, if any, of the amount on deposit in the Reserve
Account over the Required Reserve Account Amount and distribute such excess to
the Collateral Interest Holder for application in accordance with the terms of
the Loan Agreement.
Provided that the Reserve Account has not terminated as described below,
all amounts on deposit in the Reserve Account on any Transfer Date (after giving
effect to any deposits to, or withdrawals from, the Reserve Account to be made
on such Transfer Date) will be invested to the following Transfer Date by the
Trustee at the direction of the Servicer in Permitted Investments. The interest
and other investment income (net of investment
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expenses and losses) earned on such investments will be retained in the Reserve
Account (to the extent the amount on deposit is less than the Required Reserve
Account Amount) or deposited in the Finance Charge Account and treated as
Finance Charge Collections allocable to the Class A Certificates.
On or before each Transfer Date with respect to the Controlled
Accumulation Period and on the first Transfer Date with respect to the Rapid
Amortization Period, a withdrawal will be made from the Reserve Account, and the
amount of such withdrawal will be deposited in the Finance Charge Account and
included in Finance Charge Collections allocable to the Class A Certificates for
such Transfer Date in an amount equal to the lesser of (a) the Available Reserve
Account Amount with respect to such Transfer Date and (b) the Class A Principal
Funding Investment Shortfall with respect to such Transfer Date; provided that
the amount of such withdrawal will be reduced to the extent that interest and
other investment income on Reserve Account funds are deposited in the Finance
Charge Account and treated as Finance Charge Collections as described in the
last sentence of the immediately preceding paragraph. On each Transfer Date, the
amount available to be withdrawn from the Reserve Account (the "Available
Reserve Account Amount") will be equal to the lesser of the amount on deposit in
the Reserve Account (before giving effect to any deposit to be made to the
Reserve Account on such Transfer Date) and the Required Reserve Account Amount
for such Transfer Date.
The Reserve Account will be terminated upon the earlier to occur of (a)
the termination of the Trust pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (i) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled Payment Date. Upon the termination of the Reserve Account,
all amounts on deposit therein (after giving effect to any withdrawal from the
Reserve Account on such date as described above) will be distributed to the
Collateral Interest Holder for application in accordance with the terms of the
Loan Agreement.
Final Payment of Principal; Termination of Trust
The Investor Interest will be subject to optional purchase by the
Transferor on any Distribution Date on or after which the Investor Interest is
reduced to an amount less than or equal to 5% of the Initial Investor Interest
if certain conditions set forth in the Agreement are met. The Investor Interest
will be subject to mandatory purchase by the Transferor on the Distribution Date
immediately preceding the Scheduled Series 1997-1 Termination Date if the
Investor Interest is reduced to an amount less than or equal to 5% of the
Initial Investor Interest, if certain conditions set forth in the Agreement are
met. The mandatory purchase requirement is in addition to any other provisions
and remedies provided by the Agreement and will not serve to relieve any party
of obligations it may otherwise have or waive any remedy that is otherwise
provided. The purchase price will be equal to the Investor Interest, plus
accrued and unpaid interest (other than Class A Excess Interest or Class B
Excess Interest, as the case may be) on the Certificates at the applicable
Offered Certificate Rate or Collateral Rate, as applicable, and any other
amounts owing under the Loan Agreement through the date preceding the date on
which the purchase occurs, less the amounts, if any, previously accumulated for
the payment of principal and interest. The net proceeds of such purchase and any
Collections on the Receivables will be distributed pro rata to
certificateholders and holders of other undivided interests in the Trust,
including the Certificateholders, on the Distribution Date following the Monthly
Period in which such purchase occurs as final payment of the Certificates.
Subject to prior termination as provided above, the Agreement provides that the
final distribution of principal and interest on the Offered Certificates will be
made no later than the [ ] Distribution Date (the "Scheduled Series 1997-1
Termination Date").
Unless the Servicer and the Holder of the Exchangeable Transferor
Certificate instruct the Trustee otherwise, the Trust will terminate on the
earlier of: (a) the day after the Distribution Date with respect to any Series
following the day on which funds shall have been deposited in the Collection
Account or the applicable Series account sufficient to pay in full (i) the
aggregate investor interest of all Series outstanding plus accrued interest
thereon (other than Class A Excess Interest or Class B Excess Interest, as the
case may be) at the applicable certificate rates through the applicable interest
accrual period prior to the Distribution Date with respect to each such
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Series and (ii) all amounts owed to each Enhancement Provider and (b) if a trust
extension has occurred, the extended trust termination date, which shall be no
later than the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the father of the late President of the United
States, living on the date of the Agreement. Upon the termination of the Trust
and the surrender of the Exchangeable Transferor Certificate, the Trustee shall
convey to the Holder of the Exchangeable Transferor Certificate all right, title
and interest of the Trust in and to the Receivables and other funds of the Trust
(other than funds on deposit in the Collection Account and other similar bank
accounts of the Trust with respect to other Series).
In the event that the Investor Interest is greater than zero on the
Scheduled Series 1997-1 Termination Date, the Trustee will sell or cause to be
sold interests in the Receivables or certain Receivables as specified in the
Agreement, in an amount up to 110% of the Investor Interest of the Certificates
at the close of business on such date (but not more than the total amount of
Receivables allocable to the Certificates). The net proceeds of such sale and
any Collections on the Receivables will be distributed on the Scheduled Series
1997-1 Termination Date, as the final payment of the Certificates, first, pro
rata to the Class A Certificateholders in an amount sufficient to pay the Class
A Investor Interest in full, second, pro rata to the Class B Certificateholders
in an amount sufficient to pay to Class B Investor Interest in full, and the
balance to the Collateral Interest Holder.
Pay Out Events
The Revolving Period will continue through the end of the [ ] Monthly
Period and the Controlled Accumulation Period will begin at such time, unless
such date is postponed as described under "-- Postponement of Controlled
Accumulation Period" or a Pay Out Event occurs prior to such date. The Rapid
Amortization Period will commence when a Pay Out Event occurs or is deemed to
occur. A Pay Out Event with respect to the Certificates refers to any of the
following events:
(i) failure on the part of the Transferor or the Holder of the
Exchangeable Transferor Certificate (a) to make any payment or deposit on the
date required under the Agreement (or within the applicable grace period which
will not exceed five business days), unless such failure is due to certain force
majeure events, or (b) duly to observe or perform in any material respect any
covenants or agreements of the Transferor, which in the case of subclause (b)
hereof has a material adverse effect on the Offered Certificateholders (which
determination shall be made without regard to the existence of the Collateral
Interest or to whether amounts are available under the Interest Rate Caps),
continues unremedied for a period of 60 days after written notice and continues
to affect materially and adversely the interests of the Offered
Certificateholders for such period;
(ii) any representation or warranty made by the Transferor in the
Agreement, including the Series 1997-1 Supplement, or any information required
to be given by the Transferor to the Trustee to identify the Accounts proves to
have been incorrect in any material respect when made and continues to be
incorrect in any material respect for a period of 60 days after written notice
and as a result of which the interests of the Offered Certificateholders are
materially and adversely affected (which determination shall be made without
regard to the existence of the Collateral Interest or to whether amounts are
available under the Interest Rate Caps); provided, however, that a Pay Out Event
described in this clause (ii) shall not be deemed to occur if the Transferor has
accepted the transfer of the related Receivable or all such Receivables, if
applicable, during such period (or such longer period as the Trustee may
specify) in accordance with the provisions thereof;
(iii) certain events of insolvency, conservatorship or receivership
relating to the Transferor;
(iv) the average of the Portfolio Yields for any three consecutive
Monthly Periods is a rate which is less than average of the Base Rates for such
period;
(v) the Trust becomes subject to regulation as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended;
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(vi) after any applicable grace period, a failure by the Transferor to
convey Receivables in Additional Accounts to the Trust when required by the
Agreement;
(vii) any Servicer Default occurs which would have a material adverse
effect on the certificateholders (which determination shall be made without
regard to whether amounts are available under the Interest Rate Caps);
(viii) failure to have paid the Class A Investor Interest in full on the
Class A Scheduled Payment Date or to have paid the Class B Investor Interest in
full on the Class B Scheduled Payment Date; or
(ix) failure of the Interest Rate Cap Provider to make any payment under
the Class A Interest Rate Cap or the Class B Interest Rate Cap within five days
of the date such payment was due.
In the case of any event described in clause (i), (ii) or (vii), a Pay
Out Event will be deemed to have occurred with respect to the Certificates only
if, after any applicable grace period described in such clauses, either the
Trustee or Certificateholders evidencing undivided interests aggregating more
than 50% of each of the Class A Investor Interest, the Class B Investor Interest
and the Collateral Interest, by written notice to the Transferor and the
Servicer (and to the Trustee, if given by the Certificateholders) declare that,
as of the date of such notice, a Pay Out Event has occurred. In the case of
either event described in clause (iii) or (v), a Pay Out Event with respect to
all Series, and in the case of any event described in clause (iv), (vi), (viii),
or (ix), a Pay Out Event with respect to only the Certificates, will be deemed
to have occurred, without any notice or other action on the part of the Trustee,
the Certificateholders or all certificateholders, as appropriate, immediately
upon the occurrence of such event. The Rapid Amortization Period will commence
on the date a Pay Out Event occurs or is deemed to have occurred. Monthly
distributions of principal to the Certificateholders will begin (if they have
not already) on the first Distribution Date in the Monthly Period following the
Monthly Period in which such Pay Out Event occurs. Thus, Certificateholders may
begin receiving distributions of principal earlier than they otherwise would
have, which may shorten the final maturity of the Certificates.
In addition to the consequences of a Pay Out Event discussed above, if
pursuant to certain provisions of federal or state law, the Transferor
voluntarily enters liquidation or a receiver is appointed for the Transferor (an
"Insolvency Event"), on the day of such event the Transferor will immediately
cease to transfer Principal Receivables to the Trust and promptly give notice to
the Trustee of such event. Under the terms of the Agreement, within 15 days, the
Trustee will publish a notice of the occurrence of the Insolvency Event stating
that the Trustee intends to sell, dispose of, or otherwise liquidate the
Receivables in a commercially reasonable manner, unless otherwise instructed
within a specified period by the certificateholders and other holders of
undivided interests in the Trust representing undivided interests aggregating
more than 50% of the investor interest of each Series (or, with respect to any
Series with two or more classes, 50% of each class) to the effect that such
certificateholders and interest holders disapprove of the liquidation of
Receivables and wish to continue having Principal Receivables transferred to the
Trust as before such Insolvency Event, and if not so instructed the Trustee will
sell, dispose of, or otherwise liquidate the portion of the Receivables
allocable to each Series that did not vote to disapprove of the liquidation of
the Receivables in accordance with the Agreement in a commercially reasonable
manner and on commercially reasonable terms. The proceeds from the sale,
disposition or liquidation of the Receivables will be treated as Collections of
the Receivables and applied as provided above in "--Application of Collections".
If the only Pay Out Event to occur is either the insolvency of a
Transferor or the appointment of a conservator or receiver for a Transferor, the
conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Rapid
Amortization Period. In addition, a conservator or receiver may have the power
to cause the early sale of the Receivables and the early retirement of the
Certificates.
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Collection and Other Servicing Procedures
Pursuant to the Agreement, the Servicer is responsible for servicing,
collecting, enforcing and administering the Receivables in accordance with the
policies and procedures for servicing credit card receivables and exercising a
degree of skill and care consistent with those of a reasonable and prudent
servicer of credit card receivables, but in any event at least comparable with
the policies and procedures and the degree of skill and care applied or
exercised with respect to its own credit card receivables. The Servicer
maintains blanket bond coverage insuring against losses through wrongdoing of
its officers and employees who are involved in the servicing of credit card
receivables covering such actions and in such amounts as the Servicer believes
to be reasonable from time to time.
Servicing activities performed by the Servicer include collecting and
recording payments, communicating with cardholder, investigating payment
delinquencies, evaluations in relation to increasing credit limits and in
issuing credit cards, providing billing records to cardholder and maintaining
internal records with respect to each Account. Managerial and custodial services
performed by the Servicer on behalf of the Trust include providing assistance in
any inspections of the documents and records relating to the Accounts and
Receivables by the Trustee pursuant to the Agreement, maintaining the
agreements, documents and files relating to the Accounts and Receivables as
custodian for the Trust and providing related data processing and reporting
services for Certificateholders and on behalf of the Trustee.
Servicer Covenants
In the Agreement, the Servicer covenants with the certificateholders
(including the Certificateholders) and the Trustee, as to each Receivable and
related Account, that: (a) it will duly fulfill all obligations on its part to
be fulfilled under or in connection with the Receivables and the related
Accounts, and will maintain in effect all qualifications required in order to
service the Receivables and the related Accounts, the failure to comply with
which would have a material adverse effect on the certificateholders (including
the Certificateholders); (b) it will not permit any rescission or cancellation
of the Receivables, except in accordance with the credit and collection policies
of the Transferor or as ordered by a court of competent jurisdiction or other
governmental authority; (c) it will do nothing to impair the rights of the
certificateholders (including the Certificateholders) in the Receivables or the
related Accounts; and (d) it will not reschedule, revise or defer payments due
on the Receivables except in accordance with the credit and collection policies
of the Transferor for servicing receivables.
Under the terms of the Agreement, all Receivables in an Account will be
assigned and transferred or reassigned and transferred to the Servicer and such
account shall no longer be included as an Account if the Servicer discovers, or
receives written notice from the Trustee, that any covenant of the Servicer set
forth above has not been complied with and such noncompliance has not been cured
within 60 days thereafter and has a material adverse effect on the
certificateholders' interest in such Receivable. If the Transferor is the
Servicer, such reassignment and retransfer shall be made on or before the end of
the Monthly Period in which such reassignment obligation arises, by the Servicer
deducting the portion of any such Receivable which is a Principal Receivable
from the aggregate amount of Principal Receivables used to calculate the
Transferor Interest. In addition, if the Transferor Interest would be reduced
below the Minimum Transferor Interest, People's Bank as Servicer will deposit
into the Collection Account an amount equal to the amount by which the
Transferor Interest will be reduced below the Minimum Transferor Interest (such
reassignment and retransfer to the Servicer to be effected only upon such
deposit by the Servicer in the Excess Funding Account). If the Transferor is not
the Servicer, such assignment and transfer will be made when the Servicer
deposits an amount equal to the amount of such Receivable in the Collection
Account no later than the Transfer Date following the Monthly Period during
which such obligation arises. The amount of such deposit shall be allocated as
Collections pursuant to the Agreement. In either case, this retransfer and
reassignment or transfer and assignment to the Servicer constitutes the sole
remedy available to the certificateholders if such covenant or warranty of the
Servicer is not satisfied. In either case, the Trust's interest in any such
assigned Receivables shall be automatically assigned to the Servicer.
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Servicing Compensation and Payment of Expenses
The Servicer's compensation for its servicing activities and
reimbursement for its expenses is a monthly servicing fee (the "Servicing Fee").
The Servicing Fee will be allocated among the Transferor Interest (the
"Transferor Servicing Fee"), the Certificateholders, the Collateral Interest
Holder, certificateholders of all of the other Series and other holders of
undivided interests in the Trust. The portion of the Servicing Fee allocable to
each Series of certificates, including the Certificates, on any Distribution
Date will generally be equal to one-twelfth of the product of (a) the applicable
servicing fee percentage with respect to such Series and (b) the investor
interest of such Series with respect to the last day of the related Monthly
Period. The portion of the Servicing Fee allocable to each of the Class A
Certificateholders, the Class B Certificateholders and the Collateral Interest
Holder on each Distribution Date (respectively, the "Class A Monthly Servicing
Fee", the "Class B Monthly Servicing Fee" and the "Collateral Interest Monthly
Servicing Fee"; together, the "Monthly Servicing Fees") will be equal to
one-twelfth of the product of 2% per annum (the "Servicing Fee Rate") and the
Class A Adjusted Investor Interest, the Class B Investor Interest or the
Collateral Interest, as the case may be, as of the last day of the related
Monthly Period; provided, however, with respect to the first Transfer Date, the
aggregate Monthly Servicing Fees shall be an amount equal to $[ ]. The Monthly
Servicing Fees will be paid each month from the Finance Charge Account; however,
payment thereof will be made after payment to Certificateholders of certain
distributions of interest therefrom. On any Distribution Date with respect to
any Monthly Period, the Transferor Servicing Fee will equal one-twelfth of the
product of (a) the Transferor Interest and (b) the weighted average servicing
fee percentage with respect to all Series of certificates.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee, Paying Agent,
Transfer Agent and Registrar and independent accountants and other fees which
are not expressly stated in the Agreement to be payable by the Trust or the
certificateholders other than federal, state and local income and franchise
taxes, if any, of the Trust.
Certain Matters Regarding the Transferor and the Servicer
The Servicer may not resign from its obligations and duties under the
Agreement, except upon determination that performance of its duties is no longer
permissible under applicable law and except as described below. No such
resignation will become effective until the Trustee or a successor to the
Servicer has assumed the Servicer's responsibilities and obligations under the
Agreement. Notwithstanding the foregoing, People's Bank may transfer its
servicing obligations to any of its affiliates (which meets certain eligibility
standards set forth in the Agreement) or, subject to certain conditions set
forth in the Agreement, to any other entity which the Rating Agency has advised
in writing will not result in the reduction or withdrawal of its then-existing
rating of the Certificates and be relieved of its obligations and duties under
the Agreement.
The Agreement provides that the Servicer will indemnify the Trust, for
the benefit of the certificateholders (including the Certificateholders), and
the Trustee from and against any reasonable loss, liability, expense, damage or
injury suffered or sustained by reason of any acts or omissions or alleged acts
or omissions of the Servicer with respect to the activities of the Trust or the
Trustee pursuant to the Agreement; provided, however, that the Servicer shall
not indemnify (a) the Trustee for liabilities imposed by reason of or resulting
from fraud, negligence, breach of fiduciary duty or willful misconduct by the
Trustee in the performance of its duties under the Agreement, (b) the Trust, the
Certificateholders or the Offered Certificate Owners for liabilities arising
from actions taken by the Trustee at the request of Certificateholders, (c) the
Trust, the Certificateholders or the Offered Certificate Owners for any losses,
claims, damages or liabilities incurred by any Certificateholder in its capacity
as an investor, including without limitation, losses incurred as a result of
defaulted Receivables or Receivables which are written off as uncollectible or
(d) the Trust, the Certificateholders or the Offered Certificate Owners for any
liabilities, costs or expenses of the Trust, the Certificateholders or the
Offered Certificate Owners arising under any tax law, including without
limitation any federal, state or local income or franchise tax or any other tax
imposed on or measured by income (or any interest or penalties with respect
thereto or arising from a failure to comply therewith)
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required to be paid by the Trust, the Certificateholders or the Offered
Certificate Owners in connection therewith to any taxing authority.
The Agreement provides that neither the Transferor nor the Servicer nor
any of their respective directors, officers, employees or agents will be under
any other liability to the Trust, the Certificateholders or any other person for
any action taken, or for refraining from taking any action, in good faith
pursuant to the Agreement. Neither the Transferor, the Servicer nor any of their
respective directors, officers, employees or agents will be protected against
any liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence of the Transferor, the Servicer or any such person
in the performance of its duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Agreement provides that the
Servicer is not under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its servicing responsibilities under the
Agreement and which in its opinion may expose it to any expense or liability.
The Agreement provides that, in addition to Exchanges, the Holder of the
Exchangeable Transferor Certificate may transfer all or a portion of the
Exchangeable Transferor Certificate to any other party upon written consent of
the Transferor; provided, however, that, in each case, prior to any such
transfer (i) (a) the Trustee receives written notification from the Rating
Agency then rating each Series that such transfer will not result in a lowering
of its then-existing rating of the certificates rated by it and (b) the Trustee
receives (among other things) a written opinion of counsel confirming that such
transfer would not adversely affect the treatment of the Certificates of each
series as debt for Federal, New York or Connecticut state income tax purposes or
result in the trust being treated as a taxable entity and will not be treated as
a taxable exchange to Certificateholders or (ii) such transfer complies with the
provisions of the next succeeding paragraph. The Transferor, in its capacity as
the original holder of the Exchangeable Transferor Certificate, transferred its
interest in the Exchangeable Transferor Certificate to PSFC in accordance with
the requirements described in clause (i) of the preceding sentence, pursuant to
an Assignment and Assumption Agreement dated as of December 15, 1995 by and
between the Transferor and PSFC.
Any person into which, in accordance with the Agreement, the Transferor
or the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Transferor or the Servicer is a party, or
any person succeeding to the business of the Transferor or the Servicer, upon
execution of a supplemental agreement for the assumption of the Transferor's or
Servicer's obligations and delivery of an officer's certificate with respect to
the compliance of the transaction with the applicable provisions of the
Agreement and an opinion of counsel to the effect that such supplemental
agreement is legal, valid and binding, will be the successor to the Transferor
or the Servicer, as the case may be, under the Agreement. The Transferor may
effect any sale, transfer or pledge of the Accounts or any of its obligations
under the Agreement or effect any merger, consolidation or assumption which is
not in accordance with the provisions of the preceding sentence so long as,
among other conditions set forth in the Agreement: (a) the Transferor and
Servicer determine that such event will not be adverse to the interests of the
certificateholders of any Series; (b) the Rating Agency indicates that such
event will not adversely affect the then-existing rating of certificates of any
Series outstanding, including the Certificates; and (c) the purchaser,
transferee, pledgee or successor entity executes a supplemental agreement
whereby such entity agrees to assume the obligations of the Transferor.
Servicer Default
In the event of any Servicer Default (as defined below), either the
Trustee or certificateholders and other interest holders representing undivided
interests aggregating more than 50% of the sum of the investor interests of all
certificates and other undivided interests in the Trust outstanding, by written
notice to the Servicer (and to the Trustee if given by the certificateholders
and interest holders), may terminate all of the rights and obligations of the
Servicer as servicer under the Agreement and in and to the Receivables and the
proceeds thereof and the Trustee may appoint a new Servicer (a "Service
Transfer"). The rights and interest of the Transferor and the Holder of the
Exchangeable Transferor Agreement under the Agreement and, as applicable, in the
Transferor Interest will not be affected by such termination. The Trustee shall
as promptly as possible appoint a successor Servicer, which successor Servicer
must satisfy certain eligibility criteria contained in the Agreement. If no such
Servicer has been
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appointed and has accepted such appointment by the time the Servicer ceases to
act as Servicer, all authority, power and obligations of the Servicer under the
Agreement shall pass to and be vested in the Trustee. If the Trustee is unable
to obtain any bids from eligible servicers and the Servicer delivers an
officer's certificate to the effect that it cannot in good faith cure the
Servicer Default which gave rise to a transfer of servicing, and if the Trustee
is legally unable to act as successor Servicer, then the Trustee shall give the
Transferor the right to accept reassignment of the Receivables at a price
generally equal to the higher of the outstanding principal balance of the
certificates plus accrued interest through the date of reassignment and the
average bid quoted by two recognized dealers for a similar security rated in the
highest rating category by the Rating Agency and having a remaining maturity
approximately equal to the remaining maturity of such Series.
A "Servicer Default" refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or deposit or
to give instructions to the Trustee to make any withdrawal, on the date the
Servicer is required to do so under the Agreement (or within the applicable
grace period, which shall not exceed five business days);
(b) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer which has a
material adverse effect on the holders of outstanding Series, including the
Certificateholders (which determination shall be made without regard to whether
funds are available in any Enhancement) and which continues unremedied for a
period of 60 days after written notice and continues to have a material adverse
effect on the certificateholders for such period; or the delegation by the
Servicer of its duties under the Agreement, except as specifically permitted
thereunder;
(c) any representation, warranty or certification made by the Servicer
in the Agreement or any Supplement, or in any certificate delivered pursuant to
the Agreement or any Supplement, proves to have been incorrect when made which
has a material adverse effect on the rights of certificateholders (which
determination shall be made without regard to whether funds are available in any
Enhancement) and which continues to be incorrect in any material respect for a
period of 60 days after written notice; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of the Servicer.
In the event of a Servicer Default, if a conservator or receiver is
appointed for the Servicer and no Servicer Default other than such
conservatorship or receivership or the insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or the
majority of the certificateholders from effecting a Service Transfer.
Reports to Certificateholders
On each Distribution Date, the Paying Agent will forward to each
Certificateholder of record a statement (the "Monthly Servicer Report") prepared
by the Servicer setting forth among other things: [(a) the total amount
distributed to Class A Certificateholders, the Class B Certificateholders and
the Collateral Interest Holder, respectively, (b) the amount of the distribution
made on such Distribution Date allocable to Class A Monthly Principal, Class B
Monthly Principal and Collateral Monthly Principal, respectively, (c) the amount
of the distribution made on such Distribution Date allocable to Class A Monthly
Interest, Class B Monthly Interest and Collateral Monthly Interest,
respectively, (d) the amount of Principal Collections processed during the
preceding Monthly Period and allocated in respect of the Class A Certificates,
the Class B Certificates and the Collateral Interest, respectively, (e) the
aggregate amount of Principal Receivables, the Investor Interest, the Adjusted
Investor Interest, the Class A Investor Interest, the Class A Adjusted Investor
Interest, the Class B Investor Interest and the Collateral Interest, and the
Floating Investor Percentage, Class A Floating Allocation, the Class B Floating
Allocation and the Collateral Floating Allocation, the Fixed Investor
Percentage, the Class A Fixed Allocation, the Class B Fixed Allocation and the
Collateral Fixed Allocation, in each case as of the end of the last day of the
preceding Monthly Period, (f) the aggregate outstanding balance of Accounts
which are up to 30 days delinquent,
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31 to 60 days delinquent, and 61 or more days delinquent in accordance with the
Servicer's then existing credit card guidelines by class of delinquency as of
the end of the preceding Monthly Period, (g) the Class A Investor Default
Amount, the Class B Investor Default Amount and the Collateral Default Amount
for the preceding Monthly Period, (h) the aggregate amount of Class A Investor
Charge-Offs, Class B Investor Charge-Offs and Collateral Interest Charge-Offs
for the preceding Monthly Period and the aggregate amount of Investor
Charge-Offs reimbursed to each class on the Transfer Date immediately preceding
such Distribution Date, (i) the amount of the Class A Monthly Servicing Fee, the
Class B Monthly Servicing Fee and the Collateral Interest Monthly Servicing Fee
for the preceding Monthly Period, (j) the "Pool Factor" as of the end of the
last day of the preceding Monthly Period (consisting of a seven-digit decimal
expressing the ratio of Investor Interest to Initial Investor Interest), (k) the
Principal Funding Account Balance as of the related Transfer Date, (l) the
Accumulation Shortfall for each class of the Series, (m) the Principal Funding
Investment Proceeds transferred to the Finance Charge Account on the related
Transfer Date, (n) the Principal Funding Investment Shortfall on the related
Transfer Date, (o) the amount of Class A Available Funds and Class B Available
Funds on deposit in the Finance Charge Account on the related Transfer Date, (p)
the aggregate amount of Finance Charge Collections allocable to the Investor
Interest for the preceding Monthly Period, (q) the Required Amounts, if any,
and, if the amount payable under the Interest Rate Caps and Shared Finance
Charge Collections available to the Certificates are insufficient to satisfy the
Required Amount, the amount of Reallocated Collateral Principal Allocations and
Reallocated Class B Principal Allocations to be applied thereto, and any
reductions in the Collateral Interest and the Class B Investor Interest to
satisfy the Class A Required Amount and the Class B Required Amount, as the case
may be, (r) the Available Reserve Account Amount, and (s) the ratio of the
Collateral Interest to the Investor Interest of the Certificates as of the last
day of the preceding Monthly Period.
On or before January 31 of each calendar year, beginning with 1998, the
Paying Agent will furnish to each person who at any time during the preceding
calendar year was an Offered Certificateholder of record a statement prepared by
the Servicer containing the information required to be contained in the Monthly
Servicer Report, as set forth in clauses (a), (b) and (c) above aggregated for
such calendar year or the applicable portion thereof during which such person
was an Offered Certificateholder, together with such other customary information
(consistent with the treatment of the Offered Certificates as debt) as the
Trustee or the Servicer deems necessary or desirable to enable the Offered
Certificateholders to prepare their tax returns.
The Trustee will publish or will cause to be published following each
Distribution Date (including the Scheduled Series 1997-1 Termination Date) in a
daily newspaper in Luxembourg (expected to be the Luxemburger Wort) a notice to
the effect that the information described in "Description of the
Certificates--Reports to Certificateholders" in the prospectus will be available
for review at the main office of the listing agent of the Trust in Luxembourg.
Notices to Certificateholders will be given by publication in a daily
newspaper in Luxembourg, which is expected to be the Luxemburger Wort. In the
event that Definitive Certificates are issued, notices to Certificateholders
will also be given by mail to the addresses of such holders as they appear in
the certificate register.
Evidence as to Compliance
The Agreement provides that on or before March 31 of each calendar year,
beginning in 1994, the Servicer will cause a firm of independent accountants to
furnish a report to the effect that such firm has made a study and evaluation of
the Servicer's internal accounting controls relative to the servicing of
Accounts under the Agreement, and that, on the basis of such study and
evaluation, such firm is of the opinion that the system of internal accounting
controls in effect on the date set forth in such report relating to certain
servicing procedures performed by the Servicer under the Agreement, taken as a
whole, was sufficient for the prevention and detection of errors and
irregularities in amounts that would be material to the financial statements of
the Servicer and that such servicing was conducted in compliance with the
applicable sections of the Agreement, except for such exceptions, errors or
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irregularities as such firm shall believe to be immaterial to the financial
statements of the Servicer and such other exceptions, errors or irregularities
as shall be set forth in such report. In addition, on or before March 31 of each
calendar year, beginning in 1994, such firm has compared or will compare the
amounts contained in the Servicer's statements and certificates delivered during
such year with the computer reports of the Servicer and statements of any agents
engaged by the Servicer to perform servicing activities which were the source of
such amounts and deliver a report confirming that such amounts are in agreement
except for such exceptions as it believes to be immaterial to the financial
statements of the Servicer and such other exceptions as shall be set forth in
such report.
The Agreement provides for delivery to the Trustee on or before March 31
of each calendar year, beginning in 1994, of an annual statement signed by an
officer of the Servicer to the effect that the Servicer has fully performed, or
has caused to be performed, its obligations in all material respects under the
Agreement throughout the preceding year, or, if there has been a default in the
performance of any such obligation in any material respect, specifying the
nature and status of the default.
Amendments
The Agreement and any Supplement may be amended by the Transferor, the
Servicer and the Trustee, without certificateholder consent, to cure any
ambiguity, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, and to add any other provisions
with respect to matters or questions arising under the Agreement and any
Supplement which are not inconsistent with the provisions of the Agreement and
any Supplement. See "The Receivables". The Agreement may be amended from time to
time without the consent of the Certificateholders by the Trustee, and by the
Transferor or the Servicer with the consent of the Trustee, to (a) provide for
the transfer by the Transferor of its interest in and to all or part of the
Accounts in accordance with the provisions of the Agreement and (b) provide for
the purchase of Principal Receivables by the Trust at a price which is less than
100% of the outstanding balance thereof, and to provide for the treatment of
Principal Collections, in an amount up to the aggregate amount by which the
purchase price of Principal Receivables as sold thereafter is less than 100%, as
Finance Charge Collections; provided, however, that any such action shall not
adversely affect in any material respect the interests of the certificateholders
(each Certificateholder will be deemed to have agreed that the exercise of such
option by the Transferor, at such time the Transferor determines to exercise
such options, will not adversely affect in any material respects the interests
of Certificateholders); provided, further, however, that the Servicer and the
Trustee shall have received notice from the Rating Agency that any such
amendment will not result in the reduction or withdrawal of its then-existing
rating of the certificates of any Series. Moreover, any Supplement and any
amendments regarding the addition or removal of Receivables to or from the Trust
will not be considered amendments requiring certificateholder consent under the
provisions of the Agreement or any Supplement.
The Agreement may be amended by the Transferor, the Servicer and the
Trustee with the consent of the holders of certificates evidencing undivided
interests aggregating not less than 66-2/3% of the principal amount of all
Series adversely affected, for the purpose of adding any provisions to, changing
in any manner or eliminating any of the provisions of the Agreement or any
Supplement or of modifying in any manner the rights of certificateholders of any
Series. No such amendment, however, may (a) reduce in any manner the amount of,
or delay the timing of, distributions required to be made on such Series, (b)
change the definition of or the manner of calculating the interest of any
certificateholder of such Series or (c) reduce the aforesaid percentage of
undivided interests, the holders of which are required to consent to any such
amendment, in each case without the consent of all certificateholders of all
Series adversely affected. Promptly following the execution of any amendment to
the Agreement or any Supplement, the Trustee will furnish written notice of the
substance of such amendment to each certificateholder of all Series (or with
respect to an amendment of a Supplement, to the applicable Series).
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List of Certificateholders
Upon written request of Certificateholders of record representing
undivided interests in the Trust aggregating not less than 10% of the Investor
Interest, the Trustee after having been adequately indemnified by such
Certificateholders for its costs and expenses, and having given the Servicer
notice that such request has been made, will afford such Certificateholders
access during business hours to the current list of certificateholders of the
Trust for purposes of communicating with other Certificateholders with respect
to their rights under the Agreement. The Agreement generally does not provide
for any annual or other meetings of certificateholders. See "--Book-Entry
Registration" and "--Definitive Certificates" above.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Transfer of Receivables
The Transferor independently represents and warrants in the Agreement
that the transfer of Receivables, Interchange and Recoveries constitutes either
a valid transfer and assignment to the Trust of all right, title and interest of
the Transferor in and to the Receivables, Interchange and Recoveries, except for
the interest of the Transferor as the then current holder of the Exchangeable
Transferor Certificate, or the grant to the Trust of a security interest in such
property. The Transferor also independently represents and warrants in the
Agreement that, in the event the transfer of Receivables, Interchange and
Recoveries by the Transferor to the Trust is deemed to create a security
interest under the Uniform Commercial Code (the "UCC"), as in effect in the
State of New York, there will exist a valid, subsisting and enforceable first
priority perfected security interest in such property in existence at the time
of the formation of the Trust in favor of the Trust and a valid, subsisting and
enforceable first priority perfected security interest in such property created
thereafter in favor of the Trust on and after their creation, except for certain
tax and other customary liens. For a discussion of the Trust's rights arising
from a breach of these warranties, see "Description of the Certificates--
Representations and Warranties".
The Transferor independently represents that the Receivables are
"accounts" or "general intangibles" for purposes of the UCC as in effect in the
States of New York and Connecticut. The transfer and assignment of accounts and
the transfer of accounts and general intangibles as security for an obligation
are covered by Article 9 of the UCC, with the transfer and assignments of
accounts treated in the same fashion as the creation and perfection of a
security interest therein. The filing of an appropriate financing statement is
required to perfect the interest of the Trust therein. Financing statements
covering the Receivables have been filed with the appropriate governmental
authority to protect the interests of the Trust in the Receivables.
There are certain limited circumstances under the UCC in which a prior
or subsequent transferee of Receivables coming into existence after the closing
date of the issuance by the Trust of the initial Series of certificates could
have an interest in such Receivables with priority over the Trust's interest.
Under the Agreement, however, the Transferor represents and warrants that it has
transferred the Receivables to the Trust free and clear of the lien of any third
party. In addition, the Transferor covenants that it will not sell, pledge,
assign, transfer or grant any lien on any Receivable (or any interest therein)
other than to the Trust. A tax or other government lien on property of the
Transferor arising prior to the time a Receivable comes into existence may also
have priority over the interest of the Trust in such Receivable. In addition, if
the FDIC were appointed as receiver of the Transferor, certain administrative
expenses of the receiver or the State of Connecticut Department of Banking may
have priority over the interest of the Trust in such Receivable.
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Certain Matters Relating to Conservatorship and Receivership
The Transferor is chartered as a Connecticut stock savings bank and is
subject to regulation and supervision by the State of Connecticut Department of
Banking. If the Transferor becomes insolvent or is in an unsound condition or if
certain other circumstances occur, the State of Connecticut Department of
Banking may request the Attorney General of Connecticut to apply to the
Connecticut Court for an order appointing a conservator or receiver for the
Transferor. Since the Transferor is a FDIC-insured bank, Connecticut law
requires the conservator or receiver to be the Connecticut Banking Commissioner
and permits the Commissioner to request that the FDIC be appointed conservator
or receiver. In addition, the FDIC may appoint itself as conservator or receiver
for the Transferor if the FDIC determines that one or more of certain conditions
exist (such as, but not limited to, the Transferor's assets being insufficient
for obligations, substantial dissipation of assets or earnings, the existence of
unsafe or unsound conditions, the willful violation of a cease-and-desist order,
concealment of records or assets, inability to meet obligations, the incurrence
(or likelihood) of losses resulting in depletion of substantially all of its
capital, violations of law likely to cause financial deterioration, cessation of
insured status or undercapitalization of the Transferor).
The FDIA sets forth certain powers that the FDIC in its capacity as
conservator or receiver for the Transferor could exercise. To the extent that
the Transferor has granted a security interest in the Receivables to the Trust,
and that interest was validly perfected before the appointment of the FDIC as
conservator or receiver and before the Transferor's insolvency, was not taken in
contemplation of the insolvency of the Transferor, and was not taken with the
intent to hinder, delay or defraud the Transferor or the creditors of the
Transferor, such security interest should not be subject to avoidance if the
Pooling and Servicing Agreement and Supplements thereto and related documents
are approved by the Transferor and are continuously maintained as records of the
Transferor (as required by the FDIA) and the transactions represent bona fide
and arm's length transactions undertaken for adequate consideration in the
ordinary course of business and the secured party is neither an insider nor an
affiliate of the Transferor. As a result, payments to the Trust with respect to
the Receivables (up to the amount of actual, direct compensatory damages, as
described below) should not be subject to recovery by the FDIC as conservator or
receiver of the Transferor. The foregoing conclusions regarding avoidance or
recovery are based on FDIC general counsel opinions and policy statements
regarding the application of certain provisions of the FDIA. If, however, the
FDIC, as conservator or receiver for the Transferor were to assert a contrary
position, or were to require the Trustee to establish its right to those
payments by submitting to and completing the administrative claims procedure
established under the FDIA, or the conservator or receiver were to request a
stay of proceedings with respect to the Transferor as provided under the FDIA,
delays in payments on the Certificates and possible reductions in the amount of
those payments could occur. The FDIA provides that the FDIC may repudiate
contracts determined by it to be burdensome and that claims for repudiated
obligations are limited to actual, direct compensatory damages determined as of
the date of the appointment of the conservator or receiver. The FDIA does not
define the term "actual direct compensatory damages". On April 10, 1990, the
RTC, formerly a sister agency of the FDIC, adopted a statement of policy (the
"RTC Policy Statement") with respect to the payment of interest on direct
collateralized borrowings of savings associations. The RTC Policy Statement
states that interest on such borrowings will be payable at the contract rate up
to the date of the redemption or payment by the conservator, receiver, or the
trustee of an amount equal to the principal owed plus the contract rate of
interest up to the date of such payment or redemption, plus any expenses of
liquidation if provided for in the contract to the extent secured by the
collateral. However, in a case involving zero-coupon bonds issued by a savings
association which were repudiated by the RTC, a federal district court in the
Southern District of New York held, in 1993, that the RTC was obligated to pay
holders the fair market value of repudiated bonds as of the date of repudiation.
The FDIC itself has not adopted a policy statement on payment of interest on
collateralized borrowings of banks. The FDIC, as conservator or receiver, would
also have the rights and powers conferred under Connecticut law.
The Agreement provides that, upon the appointment of a conservator or
receiver or upon a voluntary liquidation with respect to the Transferor, the
Transferor will promptly give notice thereof to the Trustee and a Pay Out Event
will occur with respect to all Series then outstanding. Pursuant to the
Agreement, newly created Principal Receivables will not be transferred to the
Trust on and after any such appointment or voluntary liquidation
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(although Finance Charge Receivables on existing balances will continue to be
transferred), and unless otherwise instructed within a specified period by
holders of more than 50% of the investor interest of each Series outstanding
(or, with respect to any Series with two or more classes, 50% of each class) to
the effect that such certificateholders disapprove of the liquidation of the
Receivables and wish to continue having Principal Receivables transferred to the
Trust as before such appointment or voluntary liquidation, the Trustee will
proceed to sell, dispose of or otherwise liquidate the portion of the
Receivables allocable to each Series that did not vote to disapprove of the
liquidation of the Receivables in accordance with the Agreement in a
commercially reasonable manner and on commercially reasonable terms. There can
be no assurance, however, that a receiver or conservator will allow and not seek
avoidance of continued transfer of Receivables to the Trust after receivership
or conservatorship of the Transferor. Under the Agreement, the proceeds from the
sale of the Receivables would be treated as Collections of the Receivables and
the Investor Percentage of such proceeds would be distributed to the
Certificateholders. This procedure could be delayed, as described above. If the
only Pay Out Event to occur is either the insolvency of the Transferor or the
appointment of a conservator or receiver for the Transferor, the conservator or
receiver may have the power to prevent the early sale, liquidation or
disposition of the Receivables, the commencement of the Rapid Amortization
Period and the transfer of servicing obligations from the Transferor. A
conservator or receiver would have the power to cause the early sale of the
Receivables and the early retirement of the Certificates, to prohibit the
continued transfer of Principal Receivables to the Trust, and to repudiate the
servicing obligations of the Transferor. See "Description of the
Certificates--Pay Out Events". In addition, the appointment of a receiver or
conservator could adversely affect the Transferor's ability to repurchase
ineligible Receivables from the Trust or make cash deposits in respect of
credits, adjustments or fraudulent charges and could result in administrative
expenses of the receiver or conservator having priority over the interest of the
Trust in the Receivables.
Consumer Protection Laws
The relationship of the cardholder and credit card issuer is extensively
regulated by federal and state consumer protection laws. With respect to credit
cards issued by the Transferor, the most significant laws include the federal
Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt
Collection Practice and Electronic Funds Transfer Acts and applicable state law.
These statutes impose disclosure requirements when a credit card account is
advertised, when it is opened, at the end of monthly Billing Cycles, and at year
end. In addition, these statutes limit cardholder liability for unauthorized
use, prohibit certain discriminatory practices in extending credit, and impose
certain limitations on the type of account-related charges that may be assessed.
Cardholder are entitled under these laws to have payments and credits applied to
the credit card accounts promptly, to receive prescribed notices and to require
billing errors to be resolved promptly. The Trust may be liable for certain
violations of consumer protection laws that apply to the Receivables, either as
assignee from the Transferor with respect to obligations arising before transfer
of the Receivables to the Trust or as a party directly responsible for
obligations arising after the transfer. In addition, a cardholder may be
entitled to assert such violations by way of set-off against his obligation to
pay the amount of Receivables owing. The Transferor warrants to the Trust in the
Agreement that all Receivables have been and will be created in compliance with
the requirements of such laws. The Servicer has also agreed in the Agreement to
indemnify the Trust, among other things, for any liability arising from such
violations caused by the Servicer. For a discussion of the Trust's rights
arising from the breach of these warranties, see "Description of the
Certificates--Representations and Warranties".
Certain jurisdictions may attempt to require out-of-state credit card
issuers to comply with such jurisdiction's consumer protection laws (including
laws limiting the charges imposed by such credit card issuers) in connection
with their operations in such jurisdictions. A successful challenge by such a
jurisdiction could have an adverse impact on the Transferor's credit card
operations or the yield on the Receivables in the Trust.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion represents the opinion of Mayer, Brown & Platt,
special tax counsel to the Transferor ("Tax Counsel"), subject to the exceptions
and qualifications described herein, as to the material Federal income tax
consequences of the purchase, ownership and disposition of the Offered
Certificates. This discussion, however, does not address every aspect of the
Federal income tax laws that may be relevant to holders of Offered Certificates
in light of their personal investment circumstances or to certain types of
Offered Certificateholders subject to special treatment under the Federal income
tax laws (for example, banks and life insurance companies). Accordingly,
investors should consult their own tax advisors regarding Federal, state, local,
foreign and any other tax consequences to them of the purchase, ownership and
disposition of the Offered Certificates in their own particular circumstances.
The discussion is generally limited to those persons who are the initial holders
of the Offered Certificates and to investors who will hold Offered Certificates
as capital assets. This discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), its legislative history, the
Treasury regulations thereunder, and published rulings and court decisions in
effect (or, in the case of certain Treasury regulations, that are proposed) as
of the date hereof, all of which are subject to change, possibly retroactively.
No ruling on any of the issues discussed below has been or will be sought from
the Internal Revenue Service (the "IRS") and no assurance can be given that the
IRS will not take contrary positions. It is anticipated that the Trust will not
be indemnified for any Federal income tax that may be imposed upon it, and the
imposition of any such taxes on the Trust could result in a reduction in the
amounts available for distribution to the Offered Certificateholders.
Treatment of the Offered Certificates as Indebtedness
Tax Counsel is of the opinion that, although no transaction closely
comparable to that contemplated herein has been the subject of any Treasury
regulation, revenue ruling or judicial decision, based upon its analysis of the
factors discussed below, the Offered Certificates, when issued, will be
characterized for Federal income tax purposes as indebtedness that is secured by
the Receivables and the Trust will be disregarded.
The Transferor and Offered Certificateholders will express in the
Agreement the intent that, for Federal, state and local income and franchise tax
purposes, and for the purposes of any other tax imposed on or measured by
income, the Offered Certificates will be indebtedness secured by the
Receivables. The Transferor, by entering into the Agreement, PSFC, by its
beneficial ownership of the Transferor Interest, and each Offered
Certificateholder, by virtue of accepting a beneficial interest in an Offered
Certificate, will agree to treat the Offered Certificates (or the beneficial
interests therein) as indebtedness secured by the Receivables for Federal, state
and local income and franchise tax purposes and for the purposes of any other
tax imposed on or measured by income. Because, however, different criteria are
used in determining the nontax accounting treatment of a transaction, the
Transferor and PSFC will treat the Agreement for financial accounting purposes
as a transfer of an ownership interest in the Receivables and not as creating a
debt obligation.
The economic substance of a transaction generally determines its Federal
income tax consequences and the form of a transaction, while a relevant factor,
is generally not conclusive evidence of its economic substance. In appropriate
circumstances the courts have allowed taxpayers, as well as the IRS, to treat a
transaction in accordance with its economic substance, notwithstanding that
participants characterized the transaction differently for nontax purposes. In
some instances, however, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel believes that the
rationale of those cases will not apply to this transaction.
The determination of whether the economic substance of a transfer of an
interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
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relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether the
transferee has obtained the opportunity for gain if the property increases in
value, has assumed the risk of loss if the property decreases in value and
whether the transferee, at the time of transfer, has a fixed interest in the
proceeds of the receivable when collected. Based upon its analysis of such
factors, Tax Counsel is of the opinion that the Offered Certificates will be
characterized for Federal income tax purposes as indebtedness secured by the
Receivables. Contrary characterizations that could be asserted by the IRS are
described under "--Possible Characterization of the Offered Certificates as an
Interest in an Association Taxable as a Corporation or a Partnership" below.
Except as otherwise expressly indicated, the following discussion assumes that
the Offered Certificates will be treated as debt obligations for Federal income
tax purposes.
Interest Income to Offered Certificateholders
It is anticipated that the Offered Certificates will be issued at par
value (or at an insubstantial discount from par value). To the extent that
stated interest on the Offered Certificates constitutes "qualified stated
interest", it will be taxable as ordinary income for Federal income tax purposes
when received or accrued by Offered Certificateholders in accordance with their
respective methods of tax accounting. Qualified stated interest generally
includes stated interest that is "unconditionally payable" at least annually at
a single fixed rate or at a qualified floating or objective variable rate that
appropriately takes into account the length of the interval between payments. It
is possible that the Internal Revenue Service would take the position, based on
the applicable Treasury regulations, that none of the stated interest payable on
the Offered Certificates is "unconditionally payable" and hence that all of such
interest should be included in the Offered Certificates' stated redemption price
at maturity. Consequently, the Offered Certificates would be treated as being
issued with original issue discount ("OID") (generally, the excess of the
"stated redemption price at maturity" of an Offered Certificate, or all payments
on the Offered Certificate other than payments of qualified stated interest,
over the issue price of the Offered Certificate). To the extent the Offered
Certificates were treated as being issued with OID, an Offered Certificateholder
would be required, subject to a de minimis exception, to include OID in income
as interest over the term of the Offered Certificate under a constant yield
method, and, in general, OID must be included in income in advance of the
receipt of cash representing that income.
Tax counsel is unable to opine as to whether stated interest payable on
an Offered Certificate constitutes "qualified stated interest" such that such
interest would not be includible in the state redemption price at maturity of an
Offered Certificate and includible in income as OID. Because of the uncertainty
of treatment, holders are urged to consult their own tax advisors regarding the
treatment of stated interest on the Offered Certificates.
An Offered Certificateholder who purchases an Offered Certificate at a
market discount may be subject to the "market discount" rules of the Code. These
rules provide, in part, for the treatment of gain attributable to accrued market
discount as ordinary income upon the receipt of partial principal payments or on
the sale or other disposition of the Offered Certificate, and for the deferral
of interest deductions with respect to debt incurred to acquire or carry the
market discount Offered Certificate.
If an Offered Certificate is purchased by an Offered Certificateholder
at a premium, such premium will be amortized as an offset to interest income
(with a corresponding reduction in the Offered Certificateholder's basis) under
a constant yield method over the term of the Offered Certificate if an election
under Section 171 of the Code is made or is previously in effect.
Disposition of Offered Certificates
If an Offered Certificate is sold, exchanged or otherwise disposed of,
an Offered Certificateholder generally will recognize gain or loss in an amount
equal to the difference between the amount realized on the sale, exchange or
disposition and the Offered Certificateholder's adjusted basis in the Offered
Certificate. The adjusted basis of an Offered Certificate generally will equal
the cost of the Offered Certificate to the Offered Certificateholder, increased
by any OID or market discount previously includible in the Offered
Certificateholder's gross income, and
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reduced by the portion of the basis of the Offered Certificate allocable to
payments on the Offered Certificate previously received by the Offered
Certificateholder and any amortized premium. Subject to the market discount
rules, gain or loss on the sale or other disposition of an Offered Certificate
will be capital gain or loss if the Offered Certificate is held by the Offered
Certificateholder as a capital asset, except to the extent a holder realizes
ordinary income attributable to accrued interest. Capital gain or loss will be
long-term if the Offered Certificate is held by the Offered Certificateholder
for more than one year and otherwise will be short-term.
Possible Characterization of the Offered Certificates as an Interest in an
Association Taxable as a Corporation or a Partnership
Although, as described above, it is the opinion of Tax Counsel that the
Offered Certificates are properly characterized as debt for Federal income tax
purposes, such opinion is not binding on the IRS or the courts and no assurance
can be given that this characterization would prevail. If the IRS were to
contend successfully that the Offered Certificates were not debt obligations for
Federal income tax purposes, the arrangement created by the Agreement might be
classified for Federal income tax purposes as an association taxable as a
corporation that owns the Receivables or, possibly, as a partnership, including
a "publicly traded partnership".
If the arrangement created by the Agreement were treated as either an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, the resulting entity may be subject to Federal income taxes at
corporate tax rates on its taxable income from the Receivables. Such a tax might
result in reduced distributions to Offered Certificateholders and Offered
Certificateholders might be liable for a share of such a tax. Moreover, it is
unlikely that distributions by the entity would be deductible in computing the
entity's taxable income (assuming that the Offered Certificates were treated as
ownership interests in the Receivables rather than as debt) with the result that
the entity would have significant taxable income and tax liability. In addition,
all or part of the distributions to Offered Certificateholders would generally
be treated as dividend income to the Offered Certificateholders.
If, alternatively, the Offered Certificates were treated as interests in
a partnership, the income reportable by the Offered Certificateholders as
partners could differ from the income reportable by the Offered
Certificateholders as holders of debt obligations. For example, a cash basis
Offered Certificateholder might be required to report income when it accrued to
the partnership rather than when it is received by the Offered
Certificateholder. Moreover, an individual's share of expenses of the
partnership would be miscellaneous itemized deductions that, in the aggregate,
are allowed as deductions only to the extent they exceed two percent of the
individual's adjusted gross income, and would be subject to reduction under
Section 68 of the Code if the individual's adjusted gross income exceeded
certain limits. As a result, the individual might be taxed on a greater amount
of income than the stated rate on the Offered Certificates. Finally, if a class
of Offered Certificates were treated as interests in a partnership and another
class of Offered Certificates were treated as debt, a portion of the taxable
income allocated to an Offered Certificateholder of the class of Offered
Certificates treated as interests in a partnership that is a pension, profit
sharing or employee benefit plan or other tax-exempt entity (including an
individual retirement account) would constitute "unrelated business taxable
income" generally taxable to the holder under the Code.
Since the Transferor and PSFC will treat the Offered Certificates as
indebtedness for Federal income tax purposes, neither the Transferor nor PSFC
will comply with the tax reporting requirements that would apply under these
alternative characterizations of the Offered Certificates.
Foreign Investors
Assuming the Offered Certificates represent debt obligations for Federal
income tax purposes, if interest (including OID) paid to a nonresident alien
individual, foreign corporation, foreign partnership or foreign estate or trust
is not effectively connected with the conduct of a United States trade or
business of the recipient, it will be considered "portfolio interest" and will
(subject to the discussion of backup withholding below) be generally exempt
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<PAGE>
from United States withholding tax; provided, however, that the Offered
Certificateholder complies with applicable certification requirements (and does
not actually or constructively own ten percent or more of the voting stock of
the Transferor or PSFC and is not a controlled foreign corporation related to
the Transferor or its affiliates).
If the Offered Certificates were recharacterized as interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, to the extent distributions under the Agreement were treated
as dividends, a nonresident alien individual or foreign corporation would
generally be subject to withholding tax on the gross amount of such dividends at
the rate of 30% (or lower rate as provided by an applicable treaty). If the IRS
were to contend successfully that the Offered Certificates represent interests
in a partnership (not taxable as a corporation), an Offered Certificateholder
that is a nonresident alien, foreign corporation or foreign estate or trust
might be required to file a United States individual or corporate income tax
return and pay tax on its share of partnership income at regular U.S. rates,
including the branch profits tax in the case of an Offered Certificateholder
that is a corporation, and would be subject to withholding tax on its share of
partnership income.
Information Reporting and Backup Withholding
The Servicer will be required to report annually to the IRS, and to each
Offered Certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the Offered Certificates (and the amount of interest
withheld for Federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). Each non-exempt Offered Certificateholder will be required to
provide, under penalty of perjury, a certificate on IRS Form W-9 containing his
or her name, address, correct Federal taxpayer identification number and a
statement that he or she is not subject to backup withholding. Should a
nonexempt Offered Certificateholder fail to provide the required certification,
the Offered Certificateholder will be subject to backup withholding of U.S.
Federal income tax at a rate of 31% of the amounts otherwise payable to the
holder. Such amount would be remitted to the IRS as a credit against the
holder's Federal income tax liability.
STATE AND LOCAL TAX CONSEQUENCES
General
State tax consequences to each Offered Certificateholder will depend
upon the provisions of the state tax laws to which the Offered Certificateholder
is subject. Most states modify or adjust the taxpayer's Federal taxable income
to arrive at the amount of income potentially subject to state tax. Resident
individuals generally pay state tax on 100% of such state-modified income, while
corporations and other taxpayers generally pay state tax only on that portion of
state-modified income assigned to the taxing state under the state's own
apportionment and allocation rules. Because each state's tax law varies, it is
impossible to predict the tax consequences to the Offered Certificateholders in
all of the state taxing jurisdictions in which they are already subject to tax.
Connecticut
The activities to be undertaken by the Servicer in servicing and
collecting the Receivables will take place in Connecticut. Connecticut imposes
an income tax on corporations doing business in Connecticut measured by their
net income apportioned to Connecticut. This discussion is based upon present
provisions of Connecticut law and regulations, and applicable judicial or ruling
authority, all of which are subject to change, which change may be retroactive.
No ruling on any of the issues discussed below will be sought from the
Connecticut Department of Revenue.
Assuming the Offered Certificates are treated as indebtedness for
Federal income tax purposes, Pullman & Comley, LLC, special Connecticut counsel
to the Transferor, is of the opinion that this treatment will also apply
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for Connecticut tax purposes. Pursuant to this treatment, Offered
Certificateholders not otherwise subject to Connecticut tax would not become
subject to such tax solely because of their ownership of the Offered
Certificates. Offered Certificateholders already subject to taxation in
Connecticut as corporations, however, could be required to pay tax on the income
generated from ownership of these Offered Certificates.
In the alternative, if the Offered Certificates are treated as interests
in a partnership (not taxable as a corporation) for Federal income tax purposes,
the same treatment should also apply for Connecticut tax purposes. In such case,
Connecticut could view the partnership as doing business in Connecticut.
Connecticut would not impose any tax on the Trust, but an Offered
Certificateholder not otherwise subject to taxation in Connecticut could become
subject to Connecticut income taxes as a result of its mere ownership of Offered
Certificates.
If the Offered Certificates are instead treated as ownership interests
in an association taxable as a corporation or a "publicly traded partnership"
taxable as a corporation, then the entity could be subject to Connecticut income
tax. Such taxes could result in reduced distributions to Offered
Certificateholders. An Offered Certificateholder not otherwise subject to tax in
Connecticut would not become subject to Connecticut taxes as a result of its
mere ownership of such an interest.
Because each state's income tax laws vary, it is impossible to predict
the income tax consequences to the Offered Certificateholders in all of the
state taxing jurisdictions in which they are already subject to tax. There can
be no assurance that other states will not claim that the Servicer has
undertaken activities in such states. If such a claim were made, no assurances
can be given as to whether the Offered Certificates would be treated as
indebtedness by any particular state. Offered Certificateholders are urged to
consult their own tax advisors with respect to state taxes.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL OR FOREIGN INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE OFFERED CERTIFICATES.
CERTAIN EMPLOYEE BENEFIT PLAN CONSIDERATIONS
Section 406 of ERISA and section 4975 of the Code prohibit certain
pension, profit sharing or other employee benefit plans, Keogh plans, individual
retirement accounts or annuities and employee annuity plans (collectively,
"Benefit Plans") from engaging in certain transactions involving "plan assets"
with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to the Benefit Plan. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons.
A possible violation of the prohibited transaction rules could occur if
the Offered Certificates were to be purchased with assets of any Benefit Plan if
the Transferor, the Servicer, the Trustee or the Underwriters were a "party in
interest" or a "disqualified person", with respect to such Benefit Plan. The
Transferor, the Servicer, the Trustee and the Underwriters are "parties in
interest" or "disqualified persons" with respect to many Benefit Plans. Prior to
the purchase of an Offered Certificate, the fiduciary of any Benefit Plan should
consider whether a prohibited transaction might arise by virtue of the
relationship between the Benefit Plan and the Transferor, the Servicer, the
Trustee, the Underwriters or any affiliate of any thereof and, if so, should
consult counsel regarding the purchase. The Department of Labor (the "DOL") has
issued five class exemptions that may apply to otherwise prohibited transactions
arising from the purchase or holding of the Offered Certificates: DOL Prohibited
Transaction Exemption 84-14 (Class Exemption for Plan Asset Transactions
Determined by Independent Qualified Professional Asset Managers), 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled Separate
Accounts), 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), 95-60
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(Class Exemption for Certain Transactions Involving Insurance Company General
Accounts) and 96-23 (Class Exemption for Plan Asset Transactions Determined by
In-House Asset Managers).
Other prohibited transactions may arise through the operation of a
regulation (the "Plan Asset Regulation") issued by the DOL. Under certain
circumstances, the Plan Asset Regulation treats the assets of an entity in which
a Benefit Plan has an equity interest as assets of such Benefit Plan. Although
the Transferor and the Offered Certificate Owners have agreed to treat the
Offered Certificates as debt instruments for tax purposes, the Offered
Certificates may be considered equity interests in the Trust for purposes of the
Plan Asset Regulation. In such a case, if investment in the Offered Certificates
by Benefit Plans is substantial, the Plan Asset Regulation may apply to treat
assets of the Trust as assets of an investing Benefit Plan unless the exception
described below applies.
The assets of the Trust would not be treated as plan assets if the
Offered Certificates constitute "publicly offered securities". A
publicly-offered security is a security that is (a) freely transferable, (b)
part of a class of securities that is owned, immediately subsequent to the
initial offering, by 100 or more investors independent of the issuer and of one
another and (c) either is (i) part of a class of securities registered under
section 12(b) or 12(g) of the Exchange Act or (ii) sold to the plan as part of
an offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
later time as may be allowed by the Commission) after the end of the fiscal year
of the issuer during which the offering of such securities to the public
occurred. For the purpose of this exception, the Class A Certificates should be
deemed a "class" of securities that would be tested separately from any other
securities that may be issued by the Trust. It is anticipated that the Class A
Certificates will meet the criteria of publicly-offered securities as set forth
above. The Class A Underwriters will not sell the Class A Certificates to
Benefit Plans unless they believe that the Class A Certificates will be held by
at least 100 persons at the conclusion of the offering. In addition, there are
no restrictions imposed on the transfer of the Class A Certificates; and the
Class A Certificates will be sold as part of an offering pursuant to an
effective registration statement under the Securities Act and then will be
timely registered under the Exchange Act. The Class B Certificates may not be
acquired with the assets of any Benefit Plan.
If the Plan Asset Regulation were to apply so that the Trust is
considered to hold "plan assets", transactions involving the Trust and "parties
in interest" or "disqualified persons" with respect to a Benefit Plan that is an
Offered Certificate Owner might be prohibited under Section 406 of ERISA and
section 4975 of the Code unless an exemption is applicable. The five DOL class
exemptions mentioned above may not provide relief for all transactions involving
the Trust's assets even if they would otherwise be applicable to the purchase of
an Offered Certificate by a Benefit Plan.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of Offered Certificates should consult their own counsel regarding
whether the assets of the Trust would be considered plan assets, the
consequences that would apply if the Trust's assets were considered plan assets
and the possibility of exemptive relief from the prohibited transaction rules.
Finally, fiduciaries of a Benefit Plan should consider the fiduciary
standards under ERISA or other applicable law in the context of the Benefit
Plan's particular circumstances before authorizing an investment of a portion of
a Benefit Plan's assets in the Offered Certificates. Accordingly, among other
factors, such fiduciaries should consider whether the investment (i) satisfies
the diversification requirement of ERISA or other applicable law, (ii) is in
accordance with the Benefit Plan's governing instruments and (iii) is prudent
considering the "Risk Factors" and other factors discussed in this Prospectus.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement with respect to the Offered Certificates (the "Underwriting
Agreement"), PSFC and the Transferor have agreed with respect to the Class A
Certificates to sell to each of the Underwriters named below (the "Class A
Underwriters"), and each of the Class A Underwriters has severally agreed to
purchase, the principal amount of Class A Certificates set forth opposite its
name below:
Principal Amount of
Underwriters Class A Certificates
- ------------ --------------------
Goldman, Sachs & Co........................... $[ ]
Under the terms and conditions of the Underwriting Agreement, the
several Class A Underwriters are committed to take and pay for all of the Class
A Certificates, if any are taken.
Subject to the terms and conditions set forth in the Underwriting
Agreement, PSFC and the Transferor have agreed with respect to the Class B
Certificates to sell to Goldman, Sachs & Co. (the "Class B Underwriters" and
together with the Class A Underwriters, the "Underwriters"), and the Class B
Underwriters have agreed to purchase, the Class B Certificates.
Under the terms and conditions of the Underwriting Agreement, the Class
B Underwriters are committed to take and pay for all of the Class B
Certificates, if any are taken.
PSFC and the Transferor have been advised by the Class A Underwriters
that they propose initially to offer the Class A Certificates to the public at
the price set forth on the cover page hereof and to certain dealers at such
price less concessions not in excess of [ ]% of the principal amount of the
Class A Certificates. The Class A Underwriters may allow, and such dealers may
reallow, concessions not in excess of [ ]% of the principal amount of the Class
A Certificates to certain brokers and dealers. After the Class A Certificates
are released for sale to the public, the public offering price and other selling
terms may from time to time be varied by the Class A Underwriters.
PSFC and the Transferor have been advised by the Class B Underwriters
that they propose initially to offer the Class B Certificates to the public at
the price set forth on the cover page hereof and to certain dealers at such
price less concessions not in excess of [ ]% of the principal amount of the
Class B Certificates. The Class B Underwriters may allow, and such dealers may
reallow, concessions not in excess of [ ]% of the principal amount of the Class
B Certificates to certain brokers and dealers. After the Class B Certificates
are released for sale to the public, the public offering price and other selling
terms may from time to time be varied by the Class B Underwriters.
Application will be made to list the Class A Certificates on the
Luxembourg Stock Exchange.
Each Underwriter has represented and agreed that (a) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Offered Certificates to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or who is a person to
whom the document may otherwise lawfully be issued or passed on, (b) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 of Great Britain with respect to anything by it in relation to
the Offered Certificates in, from or otherwise involving the United Kingdom and
(c) if that Underwriter is an authorized person under the Financial Services Act
1986, it has only promoted and will only promote (as that term is defined in
Regulation 1.02 of the Financial
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Services (Promotion of Unregulated Schemes) Regulations 1991) to any person in
the United Kingdom the scheme described herein if that person is of a kind
described either in Section 76(2) of the Financial Services Act 1986 or in
Regulation 1.04 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991.
PSFC and the Transferor will indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Offered Certificates. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. Underwriters may bid for and purchase
Offered Certificates in the open market to cover syndicate short positions. In
addition, the Underwriters may bid for and purchase Offered Certificates in the
open market to stabilize the price of the Offered Certificates. These activities
may stabilize or maintain the market price of the Offered Certificates above
independent market levels. The Underwriters are not required to engage in these
activities, and may end these activities at any time.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Offered
Certificates will be passed upon for the Transferor by William T. Kosturko,
General Counsel to People's Bank. Certain legal matters relating to the Offered
Certificates will be passed upon for the Transferor by Mayer, Brown & Platt, New
York, New York. Certain legal matters relating to the federal tax consequences
of the issuance of the Offered Certificates and certain other matters relating
thereto will be passed upon for the Transferor by Mayer, Brown & Platt, New
York, New York and certain legal matters relating to Connecticut state income
tax consequences will be passed upon for the Transferor by Pullman & Comley,
LLC, Bridgeport, Connecticut, special Connecticut counsel to People's Bank.
Certain legal matters relating to the issuance of the Offered Certificates will
be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
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INDEX OF KEY TERMS
Accounts................................................................13, 85
Accumulation Period Length..................................................52
Accumulation Shortfall...................................................9, 39
Additional Accounts.........................................................14
Adjusted Investor Interest...............................................6, 64
Affinity Program Accounts...................................................30
Agent Bank Accounts.........................................................30
Aggregate Principal Receivables.............................................35
Agreement....................................................................3
Amortization Period.........................................................66
Automatic Additional Accounts...............................................14
Available Investor Principal Collections................................39, 52
Available Reserve Account Amount............................................76
Bank Portfolio..............................................................29
Base Rate...................................................................25
Benefit Plans...............................................................92
Billing Cycle...............................................................31
Cede.........................................................................2
Cedel.......................................................................48
Cedel Participants..........................................................48
Certificateholders...........................................................3
Certificates ...........................................................4, 3
Class A Adjusted Investor Interest.......................................6, 64
Class A Available Funds.....................................................68
Class A Cap Rate............................................................46
Class A Certificate Rate.....................................................7
Class A Certificateholders...................................................3
Class A Certificates......................................................4, 3
Class A Covered Amount..................................................10, 52
Class A Excess Interest..................................................7, 50
Class A Excess Principal....................................................51
Class A Fixed Allocation....................................................63
Class A Floating Allocation.................................................62
Class A Initial Investor Interest............................................5
Class A Interest Rate Cap....................................................4
Class A Investor Default Amount.............................................74
Class A Investor Interest................................................5, 63
Class A Monthly Interest.................................................7, 50
Class A Monthly Principal...................................................71
Class A Monthly Servicing Fee...............................................80
Class A Notional Amount.....................................................45
Class A Payment Amount......................................................73
Class A Principal Funding Investment Shortfall..........................10, 52
Class A Required Amount.....................................................72
Class A Scheduled Payment Date...........................................2, 11
Class A Underwriters........................................................94
Class B Cap Rate............................................................46
Class B Certificate Rate.....................................................8
Class B Certificateholders...................................................3
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Class B Certificates......................................................4, 3
Class B Excess Interest..................................................8, 50
Class B Excess Principal....................................................51
Class B Fixed Allocation....................................................63
Class B Floating Allocation.................................................62
Class B Initial Investor Interest............................................5
Class B Interest Rate Cap....................................................4
Class B Investor Charge-Off.............................................18, 74
Class B Investor Default Amount.............................................74
Class B Investor Interest................................................6, 63
Class B Monthly Cap Rate Interest...........................................67
Class B Monthly Interest.................................................8, 50
Class B Monthly Principal...................................................71
Class B Monthly Servicing Fee...............................................80
Class B Notional Amount.....................................................46
Class B Payment Amount......................................................73
Class B Required Amount.....................................................73
Class B Scheduled Payment Date...........................................2, 11
Closing Date.................................................................4
Code........................................................................88
Collateral Available Funds..................................................68
Collateral Default Amount...................................................74
Collateral Fixed Allocation.................................................63
Collateral Floating Allocation..............................................62
Collateral Interest......................................................6, 64
Collateral Interest Charge-Off..............................................75
Collateral Interest Holder...................................................5
Collateral Interest Monthly Servicing Fee...................................80
Collateral Interest Surplus..............................................9, 65
Collateral Monthly Interest.................................................69
Collateral Monthly Principal................................................71
Collateral Rate.............................................................69
Collection Account......................................................15, 60
Collection Subaccount.......................................................61
Collections.................................................................62
Commission...................................................................2
Congress....................................................................23
Controlled Accumulation Amount..............................................39
Controlled Accumulation Date.................................................9
Controlled Accumulation Period...............................................9
Controlled Deposit Amount................................................9, 38
Cooperative.................................................................48
Defaulted Accounts..........................................................62
Defaulted Receivables.......................................................74
Definitive Certificates.........................................28, 44, 49, 85
Depositaries................................................................46
Depository..................................................................44
Determination Date..........................................................74
Disclosure Document.........................................................12
Discount Option.............................................................60
Discount Percentage.........................................................60
Distribution Account........................................................61
81
<PAGE>
Distribution Date.....................................................4, 7, 44
DOL.........................................................................93
DTC...................................................................2, AII-1
DTC Participants............................................................47
Eligible Account............................................................57
Eligible Additional Account.................................................59
Eligible Automatic Additional Account.......................................59
Eligible Receivable.........................................................58
Enhancement..................................................................4
Enhancement Provider........................................................56
ERISA.......................................................................21
Euroclear...................................................................48
Euroclear Operator..........................................................48
Euroclear Participants......................................................48
Euroclear System............................................................48
Excess Funding Account......................................................61
Excess Principal............................................................51
Excess Spread...........................................................68, 70
Exchange....................................................................12
Exchange Act.................................................................2
Exchangeable Transferor Certificate..........................................5
Expected Class A Principal..................................................50
Expected Class B Principal..................................................51
FDIA........................................................................22
FDIC......................................................................4, 5
Finance Charge Account......................................................61
Finance Charge Collections..................................................62
Finance Charge Receivables..................................................13
Fixed Investor Percentage...................................................63
Floating Investor Percentage................................................62
Global Securities........................................................AII-1
Holder of the Exchangeable Transferor Certificate............................5
Holders.....................................................................49
Indirect Participants.......................................................47
Ineligible Receivable.......................................................56
Initial Collateral Interest..................................................5
Initial Expected Class A Accumulation Date..................................50
Initial Interest Period......................................................8
Initial Investor Interest....................................................5
Insolvency Event............................................................78
Interchange.................................................................34
Interest Period.............................................................45
Interest Rate Cap Provider...................................................4
Interest Rate Caps...........................................................4
Investor Charge-Off.........................................................75
Investor Default Amount.....................................................74
Investor Exchange...........................................................12
Investor Interest............................................................6
Investor Percentage..................................................6, 62, 63
IRS.........................................................................88
LIBOR....................................................................7, 45
LIBOR Determination Date....................................................45
82
<PAGE>
Loan Agreement..............................................................20
London Banking Day..........................................................45
MasterCard..................................................................28
Maximum Addition Amount.....................................................59
Minimum Aggregate Principal Receivables.....................................35
Minimum Transferor Interest.................................................35
Monthly Period...............................................................6
Monthly Servicer Report.....................................................83
Monthly Servicing Fees......................................................80
Moody's.....................................................................61
Offered Certificate Owners...................................................2
Offered Certificate Rates....................................................8
Offered Certificateholders...................................................3
Offered Certificates......................................................4, 3
OID.........................................................................89
Participants................................................................47
Pay Out Event...............................................................38
Paying Agent................................................................49
Permitted Investments.......................................................61
Plan Asset Regulation.......................................................93
Pool Factor.................................................................83
Portfolio Yield.............................................................26
Principal Account...........................................................61
Principal Allocation........................................................66
Principal Collections.......................................................62
Principal Funding Account................................................9, 61
Principal Funding Account Balance........................................9, 38
Principal Funding Investment Proceeds...................................10, 52
Principal Receivables.......................................................13
Principal Shortfalls........................................................72
Principal Terms.............................................................54
PSFC..................................................................4, 5, 43
Qualified Institution.......................................................60
Qualified Substitute Arrangement............................................46
Qualified Trust Institution.................................................61
Rapid Amortization Period...................................................11
Rating Agency...............................................................27
Reallocated Class B Principal Collections...................................73
Reallocated Collateral Principal Collections................................73
Reallocated Principal Collections...........................................73
Receivables..................................................................4
Record Date.................................................................44
Recoveries..................................................................13
Reference Banks.............................................................45
Removal Date................................................................60
Removed Accounts........................................................14, 60
Replacement Interest Rate Cap...............................................46
Representative Portfolio....................................................33
Required Amounts............................................................73
Required Collateral Interest........................................18, 71, 75
Required Reserve Account Amount.............................................76
Reserve Account.............................................................75
Reserve Account Funding Date................................................75
83
<PAGE>
Revolving Period.............................................................8
Scheduled Payment Date......................................................11
Scheduled Series 1997-1 Termination Date................................11, 77
Securities Act ...........................................................2, 3
Series.......................................................................3
Series 1997-1................................................................3
Series 1997-1 Supplement.....................................................3
Series Cut-Off Date.........................................................13
Service Transfer............................................................82
Servicer....................................................................15
Servicer Default............................................................82
Servicing Fee...............................................................80
Servicing Fee Rate..........................................................80
Shared Finance Charge Collections.......................................20, 70
Shared Principal Collections........................................19, 70, 71
Standard & Poor's...........................................................61
Supplement..................................................................11
Tax Counsel.................................................................88
Telerate Page 3750..........................................................45
Terms and Conditions........................................................49
Total System................................................................29
Transfer Agent and Registrar................................................50
Transfer Date................................................................9
Transferor...................................................................4
Transferor Exchange.........................................................12
Transferor Interest..........................................................6
Transferor Percentage.......................................................63
Transferor Servicing Fee....................................................80
Trust.....................................................................4, 3
Trust Portfolio..........................................................4, 34
Trustee......................................................................3
UCC.........................................................................85
U.S. Person..............................................................AII-4
Underwriting Agreement......................................................94
VISA........................................................................28
84
<PAGE>
ANNEX I
PRIOR SERIES ISSUED AND OUTSTANDING
The Trust has previously issued five Series of certificates, one of
which has been repaid in full. The table below sets forth the principal
characteristics of the four Series previously issued by the Trust that are
currently outstanding: the Series 1994-1 Certificates, the Series 1994-2
Certificates, the Series 1995-1 Certificates and the Series 1996-1 Certificates.
For more specific information with respect to a Series, any prospective investor
should contact People's Bank at (203) 338-7171. People's Bank will provide,
without charge, to any prospective purchaser of the Offered Certificates, a copy
of the Disclosure Documents for any previously publicly-issued Series.
Series 1994-1
Initial Investor Interest..........................................$200,000,000
Certificate Rate................................................5.10% per annum
Current Investor Interest..........................................$200,000,000
Controlled Amortization Amount...................................$16,666,666.67
Controlled Amortization Date.....................................August 1, 1996
Monthly Servicing Fee..............................................2% per annum
Initial Cash Collateral Amount.......................................$6,000,000
Surety Bond Initial Amount..........................................$19,000,000
Financial Guaranty
Issuer of the Surety Bond.....................................Insurance Company
August 1997
Expected Series Final Distribution Date.......................Distribution Date
August 2000
Scheduled Series Termination Date.............................Distribution Date
Series Issuance Date..........................................February 16, 1994
Series 1994-2
Initial Investor Interest..........................................$400,000,000
Class A Certificate Rate
through November 14, 1994.....................................5.0875% per annum
after November 14, 1994........................................LIBOR plus 0.15%
Class B Certificate Rate
through November 14, 1994.....................................5.3375% per annum
after November 14, 1994........................................LIBOR plus 0.40%
Current Investor Interest..........................................$400,000,000
Class A Controlled Amortization Amount...........................$27,142,857.14
Class B Controlled Amortization Amount..............................$20,000,000
Controlled Amortization Date......................................March 1, 1997
Monthly Servicing Fee...........................................2.00% per annum
Initial Cash Collateral Amount......................................$36,000,000
May 1998
Class A Expected Final Distribution Date......................Distribution Date
June 1998
Class B Expected Final Distribution Date......................Distribution Date
March 2001
AI-1
<PAGE>
Scheduled Series 1994-2 Termination Date......................Distribution Date
Series Issuance Date...........................................October 27, 1994
Series 1995-1
Initial Investor Interest..........................................$400,000,000
Class A Certificate Rate
through April 16, 1995.........................................6.325% per annum
after April 16, 1995...........................................LIBOR plus 0.20%
Class B Certificate Rate
through April 16, 1995.........................................6.475% per annum
after April 16, 1995...........................................LIBOR plus 0.35%
Current Investor Interest..........................................$400,000,000
Class A Controlled Amortization Amount...........................$27,142,857.14
Class B Controlled Amortization Amount..............................$20,000,000
Controlled Amortization Date.....................................August 1, 1999
Monthly Servicing Fee...........................................2.00% per annum
Initial Cash Collateral Amount......................................$36,000,000
October 2000
Class A Expected Final Distribution Date......................Distribution Date
November 2000
Class B Expected Final Distribution Date......................Distribution Date
August 2003
Scheduled Series 1995-1 Termination Date......................Distribution Date
Series Issuance Date.............................................March 21, 1995
AI-2
<PAGE>
Series 1996-1
Initial Investor Interest..........................................$400,000,000
Class A Certificate Rate
through July 14, 1996........................................5.63047% per annum
after July 14, 1996............................................LIBOR plus 0.15%
Class B Certificate Rate
through July 14, 1996........................................5.78047% per annum
after July 14, 1996............................................LIBOR plus 0.30%
Current Investor Interest..........................................$400,000,000
Class A Controlled Amortization Amount...........................$27,071,428.57
Class B Controlled Amortization Amount..............................$21,000,000
Controlled Amortization Date...................................November 1, 2000
Monthly Servicing Fee............................................2.0% per annum
Initial Cash Collateral Amount......................................$36,000,000
Class A Expected Final Distribution Date...........................January 2002
Distribution Date
Class B Expected Final Distribution Date..........................February 2002
Distribution Date
Scheduled Series 1996-1 Termination Date..........................November 2004
Distribution Date
Series Issuance Date...............................................July 2, 1996
AI-3
<PAGE>
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered People's
Bank Credit Card Master Trust Floating Rate Class A Asset Backed Certificates,
Series 1997-1 and Floating Rate Class B Asset Backed Certificates, Series 1997-1
(collectively, the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
The Depository Trust Company ("DTC"), Cedel or Euroclear. The Global Securities
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior People's Bank Credit Card Master
Trust issues.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Offered Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
Participants and Indirect Participants in DTC. As a result, Cedel and Euroclear
will hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior People's Bank Credit Master
Trust issues. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in the
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
AII-1
<PAGE>
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior People's
Bank Credit Card Master Trust issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
accounts of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued to the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of actual days elapsed and a 360 day
year. Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The Global Securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the Cedel or Euroclear cash debit will be
valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the settlement.
Under this procedure, Cedel Participants or Euroclear Participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date on the basis of actual days elapsed and a
360 day year. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the
AII-2
<PAGE>
cash proceeds in the Cedel Participant's or Euroclear Participant's account
would be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Cedel Participant or Euroclear
Participant have a line of credit with its respective clearing system and elect
to be in a debit position in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel Participant's
or Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the Cedel Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Offered
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Offered Certificate Owners
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Offered
Certificate Owner or its agent.
AII-3
<PAGE>
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Offered Certificate
Owner of a Global Security or, in the case of a Form 1001 or a Form 4224 filer,
its agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source or, for trusts whose taxable years begin after December
31, 1996, a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States fiduciaries who
have the authority to control all substantial decisions of the trust. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by People's Bank or the Underwriters. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein or
therein is correct as of any time subsequent to the date of such information.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction.
TABLE OF CONTENTS
Page
REPORTS TO CERTIFICATEHOLDERS............................................... 2
AVAILABLE INFORMATION....................................................... 2
PROSPECTUS SUMMARY.......................................................... 3
RISK FACTORS................................................................ 22
THE TRUST................................................................... 28
THE CREDIT CARD BUSINESS OF PEOPLE'S BANK................................... 28
THE RECEIVABLES............................................................. 34
MATURITY CONSIDERATIONS..................................................... 38
RECEIVABLE YIELD CONSIDERATIONS............................................. 41
USE OF PROCEEDS............................................................. 42
PEOPLE'S BANK............................................................... 42
DESCRIPTION OF THE CERTIFICATES............................................. 43
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.................................... 85
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................... 88
STATE AND LOCAL TAX CONSEQUENCES............................................ 91
CERTAIN EMPLOYEE BENEFIT PLAN CONSIDERATIONS................................ 92
UNDERWRITING................................................................ 94
LEGAL MATTERS............................................................... 95
INDEX OF KEY TERMS.......................................................... 96
ANNEX I
PRIOR SERIES ISSUED.........................................................AI-1
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES...................................................AII-1
Until [ ], 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Offered Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
$203,000,000
People's Bank Credit Card
Master Trust
$193,000,000 Floating Rate
Class A Asset Backed
Certificates, Series 1997-1
$10,000,000 Floating Rate
Class B Asset Backed
Certificates, Series 1997-1
LOGO
Transferor and Servicer
PROSPECTUS
Underwriters of the Class A Certificates
Goldman, Sachs & Co.
Underwriters of the Class B Certificates
Goldman, Sachs & Co.
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution
Registration Fee............................... $[ * ]
Printing and Engraving......................... [ * ]
Legal Fees and Expenses........................ [ * ]
Blue Sky Fees and Expenses..................... [ * ]
Accountants' Fees and Expenses................. [ * ]
Rating Agency Fees............................. [ * ]
Miscellaneous Fees............................. [ * ]
[ * ]
Total.......................................... $[70,000]
=========
- ------------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers
Article X of the Articles of Incorporation of People's Bank provides
that the Bank shall indemnify its directors, officers, employees, agents, and
all other persons eligible for indemnification by People's Bank, to the fullest
extent permitted or required by Section [33-320a] of the Connecticut General
Statutes and as provided by the Bylaws of the Bank. Furthermore, no director of
People's Bank shall be personally liable to People's Bank or its stockholders
for monetary damages for breach of duty as a director in any amount in excess of
the compensation received by the director for serving People's Bank in that
capacity during the year such violation occurred, unless such breach (1)
involves a knowing and culpable violation of law by the director, (2) enables
the director or an associate of such director (as defined in subdivision (3) of
Section [33-374d of] the Connecticut General Statutes), to receive an improper
personal economic gain, (3) shows a lack of good faith and a conscious disregard
for the duty of the director to People's Bank under circumstances in which the
director was aware that his conduct or omission created an unjustifiable risk of
serious injury to People's Bank, (4) constitutes a sustained and unexcused
pattern of inattention that amounted to an abdication of the director's duty to
People's Bank, or (5) creates liability under Section 36-9 of the Connecticut
General Statutes. Furthermore, Article X of the Articles of Incorporation
provides that any repeal or modification of Article X by the stockholders of
People's Bank shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of People's Bank existing at
the time of such repeal or modification.
Article VI of the By-laws of People's Bank provides that the Bank shall
indemnify (a) its currently acting and its former directors, officers, employees
or agents to the fullest extent that indemnification of directors is permitted
by the Connecticut Business Corporation Act and (b) its officers to the same
extent as its directors (and to such further extent as is consistent with law).
In addition, Article VI of such By-Laws provides that People's Bank shall
indemnify its directors and officers who, while serving as directors or officers
of People's Bank, also serve at the request of People's Bank as a director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent permitted by the Connecticut Business Corporation Act.
Article VI of People's Bank's By-laws also provides that any director or
officer seeking indemnification within the foregoing rights of indemnification
shall be entitled to advances from People's Bank for payment of the reasonable
expenses incurred by him in connection with the matter as to which he is seeking
indemnification as authorized by the Board of Directors in accordance with the
provisions of and in the manner and to the fullest extent permissible under the
Connecticut Business Corporation Act. Further, such Section provides that the
foregoing rights of indemnification shall not be deemed exclusive of any other
right, with respect to indemnification or otherwise, to which those seeking
indemnification may be entitled and shall inure to the benefit of the heirs,
executors and administrators of such director or officer. Furthermore, any such
right of indemnification shall be consistent with the laws of the State of
Connecticut.
<PAGE>
The Connecticut Business Corporation Act provides that a corporation may
indemnify any person made a party to any proceeding, other than an action by or
in the right of the corporation, by reason of the fact that he, or the person
whose legal representative he is, is or was a shareholder, director, officer,
employee or agent of the corporation, or an eligible outside party, against
judgments, fines, penalties, amounts paid in settlement and reasonable expenses
actually incurred by him, and the person whose legal representative he is, in
connection with such proceeding such person shall not be entitled to
indemnification if (1) it is established that such person, and the person whose
legal representative he is, was successful on the merits in the defense of any
proceeding referred to in this subsection, or (2) it shall be concluded that
such person, and the person whose legal representative he is, acted in good
faith and in a manner he reasonably believed to be in the best interests of the
corporation or, in the case of a person serving as a fiduciary of an employee
benefit plan or trust, either in the best interests of the corporation or in the
best interests of the participants and beneficiaries of such employee benefit
plan or trust and consistent with the provisions of such employee benefit plan
or trust and, with respect to any criminal action or proceeding, that he had no
reasonable cause to believe his conduct was unlawful, or (3) the court shall
have determined that in view of all the circumstances such person is fairly and
reasonably entitled to be indemnified, and then for such amount as the court
shall determine; except that, in connection with an alleged claim based upon his
purchase or sale of securities of the corporation or of another enterprise,
which he serves or served at the request of the corporation, the corporation
shall only indemnify such person after the court shall have determined that in
view of all the circumstances such person is fairly and reasonably entitled to
be indemnified, and then for such amount as the court shall determine.
Item 15. Recent Sales of Unregistered Securities
The Trust has not previously issued any unregistered securities.
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 - Form of Underwriting Agreement.*
3.1 - Articles of Incorporation as amended. (Incorporated herein by
reference to Exhibit of 3.1 - Registration Statement
No. 33-63146 of People's Bank)
3.2 - By-laws, as amended. (Incorporated herein by reference to
Exhibit 3.2 of Registration Statement No. 33-90012 of People's
Bank)
4.1 - Pooling and Servicing Agreement, and certain other related
agreements as Exhibits thereto.*
4.2 - Form of Series 1997-1 Supplement, including form of Series 1997-1
Offered Certificate, and certain other related agreements as
Exhibits thereto.*
4.3 - Form of Interest Rate Caps*
5.1 - Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 - Opinion of Mayer, Brown & Platt with respect to tax matters.*
8.2 - Opinion of Pullman & Comley, LLC with respect to tax matters.*
PART II
2
<PAGE>
23.1 - Consent of Mayer, Brown & Platt (included in its opinions filed
as Exhibit 5.1 and Exhibit 8.1).
23.2 - Consent of Pullman & Comley, LLC (included in its opinion filed
as an Exhibit to Exhibit 8.2.)
24.1 - Powers of Attorney.**
- --------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statements
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
Item 17. Undertakings
The undersigned registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement Certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
provisions described under Item 14 above, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
(c) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
PART II
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Bridgeport, State of Connecticut, on March 11, 1997.
PEOPLE'S BANK,
as originator of the Trust (Registrant)
By: /s/ George W. Morriss
George W. Morriss
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed on March [ ],
1997 by the following persons in the capacities indicated.
Signatures Title
- ---------- -----
* President and Chief Executive
- -------------------------------------
David E.A. Carson Officer, Director
* Executive Vice President,
- -------------------------------------
James P. Biggs Director
/s/ George W. Morriss Executive Vice President and
- -------------------------------------
George W. Morris Chief Financial Officer
* Senior Vice President, Comptroller,
- -------------------------------------
Carlos R. Mello as Chief Accounting Officer
* Director
- -------------------------------------
George P. Carter
* Director
- -------------------------------------
Joseph E. Clancy
* Director
- -------------------------------------
George R. Dunbar
<PAGE>
* Director
- -------------------------------------
Norwick R.G. Goodspeed
* Director
- -------------------------------------
Samuel W. Hawley
* Director
- -------------------------------------
Betty Ruth Hollander
* Director
- -------------------------------------
Jean M. LaVecchia
* Director
- -------------------------------------
Eunice S. Groark
* Director
- -------------------------------------
Saul Kwartin
* Director
- -------------------------------------
Jack E. McGregor
* Director
- -------------------------------------
John F. Merchant
* Director
- -------------------------------------
Wilmont F. Wheeler, Jr.
*BY: /S/ GEORGE W. MORRISS
- -------------------------------------
George W. Morriss
as attorney-in-fact
<PAGE>
EXHIBIT INDEX
1.1 - Form of Underwriting Agreement.*
3.1 - Articles of Incorporation, as amended. (Incorporated herein by
reference to Exhibit 3.1 of 3.1 Registration Statement
No. 33-63146 of People's Bank)
3.2 - By-laws, as amended. (Incorporated herein by reference to
Exhibit 3.2 of Registration 3.2 Statement No. 33-90012 of
People's Bank)
4.1 - Pooling and Servicing Agreement, and certain other related
agreements as Exhibits thereto.*
4.2 - Form of Series 1997-1 Supplement, including form of Series 1997-1
Offered Certificate, and certain other related agreements as
Exhibits thereto.*
4.3 - Form of Interest Rate Caps.*
5.1 - Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 - Opinion of Mayer, Brown & Platt with respect to tax matters.*
8.2 - Opinion of Pullman & Comley, LLC with respect to tax matters.*
23.1 - Consent of Mayer, Brown & Platt (included in its opinions filed
as Exhibit 5.1 and Exhibit 8.1).
23.2 - Consent of Pullman & Comley, LLC (included in its opinion filed
as an Exhibit to Exhibit 8.2).
24.1 - Powers of Attorney.**
- -----------------
* To be filed by amendment.
** Previously filed.
<PAGE>
