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)
United States
(State or other jurisdiction of
incorporation or organization)
6025
(Primary Standard Industrial
Classification Code Number)
06-1213065
(I.R.S. Employer
Identification No.)
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.
MAYER, BROWN & PLATT
1675 Broadway
New York, New York "^" 10019
(212) 506-2500
ANDREW M. FAULKNER, ESQ.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
919 Third Avenue
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
- ----------------------------------------------------------------------------------------------------------
Amount to be "^" Proposed Proposed maximum Amount of
Title of each class of registered aggregate offer aggregate offering registration
securities being registered price per unit price)"^"(1) price "^" (1) fee "^"(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Floating Rate Class A
Asset Backed Certificates,
Series "^" 1997-1........ $193,000,000 100% 193,000,000 $66,551.72
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Floating Rate Class B
Asset Backed Certificates,
Series "^" 1997-1........ $ 10,000,000 100% 10,000,000 $ 3,448.28
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Total $203,000,000 100% $203,000,000 $70,000.00
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- -----------------------
(1)"^" Estimated solely for the purpose of calculating the registration fee.
"^"(2) The full $70,000 registration fee has been previously paid.
</TABLE>
<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
<S> <C> <C>
Name and Caption in Form S-1 Caption in Prospectus
- ------------------------------------------- ------------------------------------------
1. Forepart of Registration Statement Front Cover Page of Registration Statement; Outside
and Outside Front Cover Page......... Front Cover Page of Prospectus
of Prospectus........................
2. Inside Front and Outside Back Cover Inside Front Cover Page of Prospectus; Outside Back
Pages of Prospectus.................. Cover Page of Prospectus
3. Summary Information, Risk Factors Prospectus Summary; "^" Risk Factors; The Trust;
and Ratio of Earnings to Fixed The Receivables; Receivables Yield Considerations;
Charges.............................. 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 Consequences
Registered...........................
10. Interests of Named Experts and Counsel *
11. Information with Respect to the The Trust; The Credit Card Business of People's Bank;
Registrant........................... People's Bank; Description of the Certificates
12. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities..........................
"^"
* Not applicable.
</TABLE>
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.
<PAGE>
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.
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.
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<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Price to "^" Public Underwriting "^" Discount Proceeds to "^" PSFC(1)(3)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Per Class A Certificate. "^"% % %
- --------------------------------------------------------------------------------------------
Per Class B Certificate. "^"% % %
- --------------------------------------------------------------------------------------------
Total..................."^" $ $ $
================
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</TABLE>
(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.
<PAGE>
(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
2
<PAGE>
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
3
<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.
4
<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.
"^" 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
"^".
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. "^" -------- * VISA(R)
and MasterCard(R) are registered trademarks of VISA USA, Inc. and MasterCard
International Incorporated, respectively.
5
<PAGE>
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.
6
<PAGE>
"^" 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
7
<PAGE>
class) instruct otherwise, "^" the Trustee "^" would sell "^" the portion of the
Receivables allocable to each Series that did not vote 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
8
<PAGE>
there are insufficient funds available "^" to reimburse such losses. See
"^""Description of the Certificates"^"--Defaulted Receivables; Adjustments and
Fraudulent Charges"^"".
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.
9
<PAGE>
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 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
10
<PAGE>
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 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
11
<PAGE>
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
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
12
<PAGE>
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.
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.
13
<PAGE>
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.
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.
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<PAGE>
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.
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.
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<PAGE>
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.
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
16
<PAGE>
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 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.
17
<PAGE>
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 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%
=====
"^"-----------------------------
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<PAGE>
(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.
Delinquency Experienc"^" e
Representative Portfoli"^" o
(Dollars in Thousands"^")
As of December 31,
1996 1995 1994
------ ------ -----
"^" Number of Days Amount Percentage Amount Percentage Amount Percentage
Delinquent(1)
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%
======== ======= =======
"^"-----------------------------
(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
19
<PAGE>
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 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
20
<PAGE>
(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.
21
<PAGE>
<TABLE>
<CAPTION>
Composition by Account Balance
T"^" rust Portfolio
Percentage
Percentage of of Total
"^" Account "^" Balanc Number of Total Number Receivables
Range Accounts of Accounts Receivables Balanc 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>
<CAPTION>
Composition by Credit Limit
T"^" rust Portfolio
Percentage
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>
<CAPTION>
Composition by Period of Delinquency
"^" Trust Portfolio
Period of Delinquency Percentage of Percentage of
(Days Contractually Number of Total Number Total Receivables
Delinquent) "^" Accounts of Accounts Receivables Balanc 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>
22
<PAGE>
<TABLE>
<CAPTION>
"^" Composition by "^" Account Age
Trust Portfolio
Percentage of
Number of Total Number Percentage of Total
Account Age Accounts of Accounts Receivables Balance Receivables 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>
<CAPTION>
"^" Geographic Distribution
Trust Portfolio
Percentage of Percentage 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%
</TABLE>
(1) States with less than 3.07% of the Percentage of Total Receivables Balance.
23
<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.
24
<PAGE>
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 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
25
<PAGE>
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 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.
26
<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.
27
<PAGE>
Revenue Experience
Representative Portfolio
("^" Dollars in Thousands)
Year Ended December 31,
1996 1995 1994
"^" Finance Charges and Fee
Billed(1)................ s"^" $328,227 $263,555 $182,657
========
Average Receivables "^"
Outstanding(2)........... $2,108,835 $1,649,780 $1,182,028
==========
Yield "^" from Finance 15.56%
Charges and Fees Billed(3)(4) 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)
(2) 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
28
<PAGE>
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 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
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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
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
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<PAGE>
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 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).
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"^" 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 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]
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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 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
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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.
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.
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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 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
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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 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
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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 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
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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.
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
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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 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"^"".
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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 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
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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 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
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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 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
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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 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.
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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 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
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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
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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. 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.
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"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
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
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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.
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
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(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 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;
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(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
(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
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<PAGE>
(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 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
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<PAGE>
"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 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.
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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
"^" , 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;
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<PAGE>
(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;
(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
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<PAGE>
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 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.
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"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.
"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.
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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
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
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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 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
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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 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.
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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 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:
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(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;
(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
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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.
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
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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.
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,
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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) 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
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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 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
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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, 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
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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
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.
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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).
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
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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.
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
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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 (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
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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.
"^"
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,
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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
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
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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 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
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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
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
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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 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.
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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 (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.
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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.
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:
Underwriters Principal Amount of
Class A Certificates
"^" Goldman, Sachs & Co................ "^" $[ ]
================
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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 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
82
<PAGE>
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.
83
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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
84
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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 Charge-Off..............................................75
Collateral Interest Holder...................................................5
Collateral Interest Monthly Servicing Fee...................................80
Collateral Interest Surplus..............................................9, 65
Collateral Interest......................................................6, 64
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
85
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Distribution Account...................................................."^" 61
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 Operator.................................................."^" 48
Euroclear Participants.................................................."^" 48
Euroclear ................................................................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
86
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"^" LIBOR Determination Date............................................"^" 45
LIBOR .............................................................7, 45
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 Balance........................................9, 38
Principal Funding Account................................................9, 61
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
87
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Required "^" Collateral "^" Interest............................18, "^" 71, 75
Required Reserve Account Amount.............................................76
Reserve Account.............................................................75
Reserve Account Funding Date................................................75
Revolving Period........................................................."^" 8
Scheduled Payment Date......................................................11
Scheduled Series 1997-1 Termination Date................................11, 77
Securities Act........................................................2, "^" 3
Series .................................................................3
Series 1997-1 Supplement.....................................................3
Series 1997-1................................................................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
U.S. Person .............................................................AII-4
UCC ............................................................"^" 85
"^" Underwriting Agreement.............................................."^" 94
VISA ............................................................"^" 28
88
<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
AI-1
<PAGE>
Class B Expected Final Distribution Date................"^" Distribution Date
March 2001
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 preposition
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
AII-2
<PAGE>
day, and receipt of the cash proceeds in the "^" Cedel Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
"^" Cedel Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in 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.
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
<PAGE>
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 3.1 of = 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.*
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).
PART II
2
<PAGE>
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 11, 1997 by the following persons in the capacities indicated.
Signature"^" s Titl"^" e
"^"* President and Chief Executive
David E.A. Carso"^" n Officer, Directo"^" r
"^"* Executive Vice President, Directo"^"r
James P. Bigg"^" s
"^" Executive Vice President and Chief
George W. Morris "^" Financial Officer
"^"* "^" Senior Vice President,
Carlos R. Mello Comptroller, 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 "^" = 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.*
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>
- ------------------ COMPARISON OF FOOTNOTES ------------------
- -FOOTNOTE *-
VISA(R) and MasterCard(R) are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
- ------------------ COMPARISON OF FOOTERS ------------------
- -FOOTER 1-
"^" 24221738.1 95174876
- -FOOTER 2-
PART"
- -FOOTER 3-
^" II
"^"#
- -FOOTER "4" 3-
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