<PAGE>
RULE NO. 424(b)(4)
REGISTRATION NO. 333-45785
$370,000,000
PEOPLE'S BANK CREDIT CARD MASTER TRUST
$343,000,000 FLOATING RATE CLASS A ASSET BACKED CERTIFICATES, SERIES 1998-1
$27,000,000 FLOATING RATE CLASS B ASSET BACKED CERTIFICATES, SERIES 1998-1
LOGO
TRANSFEROR AND SERVICER
----------------
Each of the Floating Rate Class A Asset Backed Certificates, Series 1998-1
(the "Class A Certificates") and each of the Floating Rate Class B Asset
Backed Certificates, Series 1998-1 (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 the Amended and Restated
Pooling and Servicing Agreement, dated as of March 18, 1997, amending and
restating in its entirety the Pooling and Servicing Agreement dated as of June
1, 1993, and as further amended, from time to time, 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 $30,000,000 (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 five 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.
(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 24.
----------------
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.
----------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(2) PSFC(1)(3)
-------------- ------------ ------------
<S> <C> <C> <C>
Per Class A Certificate................ 100.00% 0.29% 99.71%
Per Class B Certificate................ 100.00% 0.29% 99.71%
Total.................................. $370,000,000 $1,073,000 $368,927,000
</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 $765,000.
----------------
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 April 1, 1998,
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.
J.P. MORGAN & CO.
LEHMAN BROTHERS
SALOMON SMITH BARNEY
UNDERWRITERS OF THE CLASS B CERTIFICATES
GOLDMAN, SACHS & CO.
----------------
The date of this Prospectus is March 24, 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
CERTIFICATES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING
TRANSACTIONS AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
(Continued from previous page)
Interest with respect to the Offered Certificates is scheduled to be
distributed on April 15, 1998 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, 1998 at the
rate of 5.8275% per annum and with respect to each Interest Period (as defined
herein) thereafter in the manner and with the exceptions described herein at
the rate of 0.14% 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, 1998 at
the rate of 6.0275% per annum and with respect to each Interest Period
thereafter in the manner and with the exceptions described herein at the rate
of 0.34% 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 March 2003 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 April 2003 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 Certificate
Holders 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 CERTIFICATE HOLDERS
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
Certificate Holders" 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 Certificate Holders or to the owners of beneficial
interests in the Offered 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.
Such periodic reports will also be available at the offices of Bankers Trust
Luxembourg, S.A., the Listing Agent with respect to the Class A Certificates.
See "Listing and General Information."
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 has been made to list the Class A Certificates on the Luxembourg
Stock Exchange.
2
<PAGE>
OTHER INFORMATION
This Prospectus contains certain limited information about the offering of
the Class A Certificates which is relevant to non-U.S. persons. Detailed
information concerning the offering is contained herein and purchasers are
urged to read this Prospectus in full. The distribution of this Prospectus and
the offering of the Certificates in certain jurisdictions may be restricted by
law. Persons into whose possession this Prospectus comes are required by the
Underwriters to inform themselves about and to observe any such restrictions.
The Transferor and PSFC have taken all reasonable care to ensure that the
information contained in this Prospectus in relation to the Transferor and
PSFC, as the case may be, and the Certificates is true and accurate in all
material respects and that in relation to the Transferor, PSFC and the
Certificates there are no material facts the omission of which would make
misleading any statement herein, whether fact or opinion. The Transferor and
PSFC each accepts responsibility accordingly.
This Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy the Certificates in any jurisdiction in which such offer or
solicitation is unlawful.
No person has been authorized to give information or make statements other
than those of this Prospectus and no person may rely on such information or
statements as having been authorized. The publication of this Prospectus does
not imply that the information contained herein is still valid after the date
of publication.
As used in this Prospectus, all references to "dollars" and "$" refer to
United States dollars.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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..... $343,000,000 Floating Rate Class A Asset Backed
Certificates, Series 1998-1 (the "Class A
Certificates") and $27,000,000 Floating Rate Class B
Asset Backed Certificates, Series 1998-1 (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 1998-1 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 18,
1997, amending and restating in its entirety the
Pooling and Servicing Agreement dated as of June 1,
1993, as further amended from time to time, and,
unless the context requires otherwise, refers to the
Agreement as supplemented by the Series 1998-1
Supplement; the term "Offered Certificate Holders"
refers to holders of the Offered Certificates; the
term "Certificate Holders" refers to the Offered
Certificate Holders and the Collateral Interest
Holder collectively; the term "Class A Certificate
Holders" refers to holders of the Class A
Certificates and the term "Class B Certificate
Holders" 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 1998-1" refers to
the Series represented by the Certificates.
The Trust currently has five 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 certificate holders of
any Series, an interest rate cap agreement for the
exclusive benefit of the Class A Certificate Holders
(the "Class A Interest Rate Cap") and an interest
rate cap agreement for the exclusive benefit of the
Class B Certificate Holders (the "Class B Interest
Rate Cap" and, together with the Class A Interest
Rate Cap, the "Interest Rate Caps"), each provided by
Lehman Brothers Financial Products Inc. (the
"Interest Rate Cap Provider"), and any 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 Certificate Holders will not be entitled
to the benefits of any Enhancement issued with
respect to any Series other than Series 1998-1, and
the holders of the certificates of other Series will
not be entitled to the benefits of, among other
things, the Interest Rate Caps or the Collateral
Interest. The term "Enhancement" shall mean, with
respect to any Series, any letter of credit, cash
collateral account, collateral interest, surety bond,
guaranteed rate agreement, maturity guaranty
facility, tax protection agreement, reserve account,
subordinated class of certificates, or other contract
or agreement principally for the benefit of
certificate holders of such Series.
Securities Offered...... The Class A Certificates and the Class B Certificates
will be issued on April 1, 1998 (the "Closing Date")
in book-entry form only, in the initial principal
amounts of $343,000,000 and $27,000,000,
respectively, and will each be represented by one or
more Offered Certificates registered in the name of
Cede. All references herein to Offered Certificate
Holders, Class A Certificate Holders or Class B
Certificate Holders 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
$30,000,000 (which amount represents 7.5% of
- --------
* VISA(R) and MasterCard(R) are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
5
<PAGE>
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
Certificate Holders, 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 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 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. A Certificate is not a deposit and is 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
Certificate Holders' interest in Principal
Receivables will equal $343,000,000 (the "Class A
Initial Investor Interest"), the amount of the Class
B Certificate Holders' interest in Principal
Receivables will equal $27,000,000 (the "Class B
Initial Investor Interest"), and the amount of the
Collateral Interest in Principal Receivables will
equal $30,000,000 (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 Certificate Holders'
interest in Principal Receivables on any date after
the Closing Date (the "Class A Investor Interest")
will equal the Class A Initial Investor Interest,
less the sum of (i) an amount equal to the sum of all
payments in respect of principal made on the Class A
Certificates and (ii) all Class A Investor Charge-
Offs, plus any reimbursements of such Class A
Investor Charge-Offs. The "Class A Adjusted Investor
Interest" will equal (i) the Class A Investor
Interest less (ii) the Principal Funding Account
Balance on such date. The Class B
6
<PAGE>
Certificate Holders' 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 reimbursements of
such other reductions of the Class B Investor
Interest. 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 reimbursements of 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 Receivables, 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, seven
other Series have been issued by the Trust, five of
which are currently outstanding. See "Annex I: Prior
Series Issued and Outstanding."
Allocation The Certificates will include the right to receive
Percentages............ (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
7
<PAGE>
Certificate Holders based on the Floating Investor
Percentage as described under "Description of the
Certificates--Allocation Percentages." Such amounts
so allocated will be further allocated among the
Class A Certificate Holders, the Class B Certificate
Holders 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 Certificate Holders based on
the Fixed Investor Percentage, as described under
"Description of the Certificates--Allocation
Percentages." Such amounts so allocated will be
further allocated between the Class A Certificate
Holders, the Class B Certificate Holders 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 April 15,
1998 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 product of
(a) the London interbank offered quotations rate for
one-month United States dollar deposits ("LIBOR"),
determined as described herein, plus 0.14% (the
"Class A Certificate Rate") (or 5.8275% for the
Initial Interest Period), (b) the lesser of the Class
A Adjusted Investor Interest as of the preceding
Distribution Date after giving effect to all
payments, deposits and withdrawals on such
Distribution Date (or, in the case of the first
Distribution Date, the Class A Initial Investor
Interest) 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 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 the Class A Cap Rate, 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 Certificate
Holders, 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 the Class A Cap Rate, (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,
8
<PAGE>
interest will be distributed in an amount equal to
the sum of (w) the product of (a) LIBOR, determined
as described herein, plus 0.34% (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
6.0275% for the Initial Interest Period), (b) the
lesser of the Class B Investor Interest as of the
preceding Distribution Date after giving effect to
all payments, deposits and withdrawals on such
Distribution Date (or, in the case of the first
Distribution Date, the Class B Initial Investor
Interest) 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 the Class B Cap Rate, 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
Certificate Holders, 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 the Class B Cap Rate, (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
available Excess Spread. Interest distributable on
April 15, 1998 will accrue from and including the
Closing Date to and including April 14, 1998 (the
"Initial Interest Period").
Revolving Period........ No principal will be payable to Offered Certificate
Holders until the March 2003 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 Certificate
Holders 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
9
<PAGE>
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 Unless a Pay Out Event has occurred or is deemed to
Accumulation Period.... 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 on
January 1, 2002 (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"). The
amount on deposit in the Principal Funding Account
(the "Principal Funding Account Balance") will be
deposited in the Distribution Account for
distribution to the Class A Certificate Holders on
the Class A Scheduled Payment Date. If, for any
Monthly Period prior to the Class A Scheduled Payment
Date, 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 "Accumulation Shortfall" for
the succeeding Monthly Period. See "Description of
the Certificates--Application of Collections."
On the Transfer Date 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 Certificate Holders on the Class B Scheduled
Payment Date. If, for any Monthly Period, the
Available Investor Principal Collections for such
Monthly Period exceed the Controlled Deposit Amount
(or if the Class A Investor Interest is zero, the
Class B Investor Interest), 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
10
<PAGE>
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.
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 Certificate
Holders in respect of the Class A Investor Interest
on the Class A Scheduled Payment Date. If the
aggregate principal amount of deposits made to the
Principal Funding Account is insufficient to pay the
Class A Investor Interest in full on the Class A
Scheduled Payment Date, the Rapid Amortization Period
will commence 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 Certificate Holders
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 a Rapid
Amortization Period has not commenced, Available
Investor Principal Collections will be used to pay
the Class B Certificate Holders in respect of the
Class B Investor
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<PAGE>
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 Certificate
Holders 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 deposited in the
Distribution Account for distribution to the Class A
Certificate Holders 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 During the period beginning on the day on which a Pay
Period................. 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 1998-1 Termination Date (the
"Rapid Amortization Period"), the Principal
Allocation along with Shared Principal Collections
from other Series, if any, and any amounts withdrawn
from the Excess Funding Account allocated to the
Certificates will be distributed monthly to the Class
A Certificate Holders until the Class A Investor
Interest is paid in full and, following the final
principal payment to the Class A Certificate Holders,
to the Class B Certificate Holders until the Class B
Investor Interest is paid in full and, following the
final principal payment to the Class B Certificate
Holders, 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.
Scheduled 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 March 2003 Distribution Date (the
"Class A Scheduled Payment Date") and the April 2003
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 November 2005 Distribution
Date (the "Scheduled Series 1998-1 Termination
Date"). After the Scheduled Series 1998-1 Termination
Date,
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<PAGE>
neither the Trust nor the Transferor will have any
further obligation to pay principal or interest on
the Offered 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 1998-1
Supplement permits an Investor Exchange with respect
to the 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
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<PAGE>
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 any of the then outstanding Series of
certificates, including 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 cardholders 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, certain
premiums in respect of credit insurance relating to
cardholders' balances, Recoveries, Interchange and
investment earnings on the Excess Funding Account
(collectively, the "Finance Charge Receivables"). 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 December 31, 1997 (the
"Series Cut-Off Date"), together with Additional
Accounts conveyed on February 2, 1998, but excluding
Accounts designated as Removed Accounts as of March
2, 1998 (the "Removal"). "Recoveries" means amounts
received with respect to charged-off credit card
receivables which, immediately prior to being
charged-off, were included in the Trust Portfolio.
The aggregate amount of Receivables in the Accounts
as of the Series Cut-Off Date was approximately
$2,846,000,000 after giving effect to Additional
Accounts conveyed on February 2, 1998 and the Removal
on March 2, 1998.
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<PAGE>
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 from
time to time (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.
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 from the Trust the Receivables
related to certain Accounts designated by the
Transferor (the "Removed Accounts") and accept the
conveyance of all the Receivables in the Removed
Accounts, whether such Receivables are then existing
or thereafter created. Removed Accounts are not
included as Accounts of the Trust Portfolio. The
Transferor previously designated Accounts as Removed
Accounts on March 2, 1998. See "Description of the
Certificates--Removal of Accounts."
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<PAGE>
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 Offered Certificate Owners may elect to hold their
Settlement............. certificates through DTC (in the United States) or
Cedel or Euroclear (in Europe), each of which in turn
hold through their respective depositaries, which
will hold positions 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.
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 Certificate Holders 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 Certificate Holders will bear
directly the credit and other risks associated with
their interest in the Trust. To the extent the Class
B Investor
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<PAGE>
Interest is reduced, the percentage of Finance Charge
Collections allocated to the Class B Certificate
Holders 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 Certificate Holders will be reduced. See
"Description of Certificates--Subordination of the
Class B Certificates" and "--Application of
Collections."
Application of Excess
Spread and Reallocated If Finance Charge Collections allocable to the Class
Cashflow............... 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.
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<PAGE>
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
18
<PAGE>
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 Certificate
Holders) will be reduced by the amount of such
deficiency (but not by more than the Class B Investor
Default Amount for such Monthly Period). In the event
that such 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 The "Required Collateral Interest" with respect to
Interest............... any Transfer Date means (a) initially, the Initial
Collateral Interest and (b) on any Transfer Date
thereafter, an amount equal to 7.5% 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 $12,000,000; 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;
19
<PAGE>
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 and Shared Finance
Charge Collections, 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 Certificate Holders
and the Class B Certificate Holders, 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 be equal to or greater than 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, in each case less the
aggregate notional amount of any portion of the
related Interest Rate Cap sold on or prior to the
date of determination. 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 satisfy
the Collateral Monthly Principal, will be available
to cover principal payments due to or for the benefit
of the certificate holders of other Series. In
addition, if in any Monthly Period during the
Controlled Accumulation Period the Principal
Allocation is greater than the sum of (i) the
Controlled Deposit Amount and (ii) the Collateral
Monthly Principal, such excess will also be available
to cover principal payments due to or for the benefit
of certificate holders of other Series and holders of
other undivided interests in the Trust issued
pursuant to the Agreement and the applicable
Supplements.
20
<PAGE>
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 Certificate Holders. See "Description of the
Certificates--Allocation of Funds."
In any Monthly Period, the amount of Excess Spread
available after application to items (a) through (n)
listed under "Description of the Certificates--
Allocation of Funds--Excess Spread (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
Certificate Holders, 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 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 1998-1 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
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among the Trustee, the Transferor, the Servicer, the
Collateral Interest Holder and the other financial
institutions party thereto (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 Trustee, the
Holder of the Exchangeable Transferor Certificate and
the 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 with respect to the Class
A Certificates. The Class B Underwriters do not
anticipate that the Class B Certificates will be held
by at least 100 persons upon the completion of this
offering. Accordingly, the Class B Certificates may
not be acquired with the assets of any employee
benefit plan, including without limitation any
insurance company general account deemed to include
the assets of an 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 It is a condition to the issuance of the Class A
Rating................. Certificates that the Class A Certificates be rated
in the highest generic rating category by at least
one nationally recognized rating agency.
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Class B Certificate It is a condition to the issuance of the Class B
Rating................. 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 has been made to list the Class A
Certificates on the Luxembourg Stock Exchange.
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RISK FACTORS
Limited Liquidity. There is currently no market for the Offered
Certificates. The Underwriters intend to make a market in the Offered
Certificates but are not obligated to do so. There is no assurance that a
secondary market will develop or, if it does develop, that it will provide
Offered Certificate Holders 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."
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<PAGE>
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. In that event, unless holders of more than 50% of the investor
interest of each Series of certificates issued and outstanding (or with
respect to any Series with two or more classes, more than 50% of each class)
instruct otherwise, the Trustee would sell the portion of the Receivables
allocable to each Series that did not vote 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 certificate holders of each such Series (including
the Certificate Holders) 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 certificate holders 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 certificate
holders 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 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 unsuccessfully to
limit the maximum annual percentage rate that issuers may assess on credit
card accounts. If such legislation were enacted and imposed 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
average of the Base Rates for 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 made, 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
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<PAGE>
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 Certificate Holders in the Receivables if such
laws result in any Receivables being written off as uncollectible when there
are insufficient funds available to reimburse such losses. See "Description of
the Certificates--Defaulted Receivables; Adjustments and Fraudulent Charges."
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 issuers
seek to expand their share 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. The Transferor has traditionally
competed as a low fixed-rate provider of credit card services targeting highly
creditworthy customers who carry balances on their credit cards. The growth of
the Transferor's credit card portfolio is largely due to customers who,
attracted by its 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 cardholders 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 Certificate Holders and
the commencement of the Rapid Amortization Period. Certificate Holders 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."
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Social, Technological and Economic Factors. Changes in card usage and
payment pattern by cardholders may result from a variety of social,
technological and economic factors. Social factors include potential changes
in consumers' attitudes to financing purchases with debt. Technological
factors include new methods of payment, such as debit cards. Economic factors
include the rate of inflation, unemployment levels, personal bankruptcy levels
and relative interest rates. As a consequence of some of these factors, the
credit card industry has experienced generally increased levels of losses and
delinquencies. The loss and delinquency experience of the Trust Portfolio has
reflected that trend.
While the Trust Portfolio is a geographically diverse portfolio, the largest
concentration (approximately 10%) of accounts giving rise to the Receivables
included in the Trust Portfolio are in California. Approximately 9% of the
Receivables included in the Trust Portfolio are from Accounts in Connecticut,
the second largest geographic state concentration in the Trust Portfolio and
the headquarters state of People's Bank. The loss and delinquency experience
of Connecticut Accounts is generally equivalent to the remaining Accounts in
the Trust Portfolio. Connecticut's economy has historically been highly
dependent on the insurance, aerospace and defense industries. As a result of
consolidation and structural changes in the financial services sector and
defense budget cutbacks, Connecticut's overall job growth lagged behind the
United States as a whole during much of the current economic expansion.
However, total job growth has been positive since 1993 and employment growth
increased by 2.4% in 1997, the strongest in a decade and nearly as strong as
the national rate of 2.7%. The state's unemployment rate of 4.4% was below the
national rate of 4.7% at December 1997, and Connecticut residents continue to
have the highest per capita income of any state in the country.
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 Class A
Investor Interest has been paid in full 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 Certificate Holders 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
with respect to the Certificate Holders' interest in such Receivables will
first be used to pay principal amounts due to the Class A Certificate Holders
and will then be used to pay principal amounts due to the Class B Certificate
Holders, thereby causing a loss to Class B Certificate Holders if such
remaining portion is insufficient to pay the Class B Certificate Holders 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
Certificate Holders 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
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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 Certificate Holders and
the commencement of the Rapid Amortization Period. Under the Agreement, the
Transferor has agreed that, except as otherwise required by law or as is
deemed by the Transferor to be necessary in order to maintain its credit card
business, based upon a good faith assessment by it, in its sole discretion, of
the nature of the competition in that business, the Transferor will not (i)
reduce the annual percentage rate which determines the monthly periodic
finance charges assessed on the Receivables or other fees on the accounts, if
as a result of such reduction, its reasonable expectation of the Portfolio
Yield as of such date would be less than the weighted average base rates of
all Series then issued and outstanding 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
efforts. 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 Servicing Fee Rate. 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 Yields for any three consecutive Monthly
Periods being less than the average of the Base Rates for such Monthly
Periods), 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 that would result in such monthly periodic finance charges
on the last day of such Monthly Period being less than the weighted average of
the base rates for all Series then issued and outstanding. 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 Certificate Holders. 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. In addition, an increase in the monthly periodic
finance charges and other fees applicable to the Accounts might have the
result of decreasing the volume of Receivables generated on those Accounts. A
significant decrease in Receivables could cause the Transferor Interest to
decline below the Minimum Transferor Interest. The Transferor would be
obligated in such event to add Receivables
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from Additional Accounts (to the extent available) to the Trust. If the
Transferor were unable to convey Receivables in Additional Accounts to the
Trust when required by the Agreement, a Pay Out Event would occur.
Master Trust Considerations. The Trust, as a master trust, will issue the
Certificates, has issued seven prior Series of certificates, five of which are
currently outstanding, 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 1998-1 Supplement
will not permit the subordination of Series 1998-1 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 or Automatic Additional Accounts, might not have an impact
on the timing and amount of payments received by a Certificate Holder,
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."
Addition of Accounts. The Transferor expects, and in some cases will be
obligated, to designate Additional Accounts from time to time, the Receivables
in which will be conveyed to the Trust. Such Additional Accounts will likely
include accounts originated using criteria different from those which were
applied to previously-designated Accounts, because such Accounts were
originated at a different date, under different underwriting criteria or by
different institutions, or represent a separate segment of the Transferor's
credit card business. Consequently, there can be no assurance that Additional
Accounts designated in the future will be originated, priced or underwritten
in the same manner as previously-designated Accounts. The designation of
Additional Accounts will be subject to the satisfaction of certain conditions
described herein under "Description of the Certificates--Addition of
Accounts."
Control. Subject to certain exceptions, the certificate holders 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 outstanding 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
Certificate Holders votes to take or direct such action, the certificate
holders 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
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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 1998-1 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 Certificate Holders in future Monthly
Periods and in a reduction of the aggregate principal amount returned to the
Certificate Holders. If the Collateral Interest and, with respect to the Class
A Certificates, the Class B Investor Interest are reduced to zero, Class A
Certificate Holders and Class B Certificate Holders 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,
other than reductions resulting from principal payments, will be reimbursed by
Excess Spread and Shared Finance Charge Collections which are allocated and
available to fund such amounts. Certain factors, such as lowering the finance
charges (including late fees and membership charges) on outstanding
Receivables balances and increased convenience use by obligors who pay their
entire monthly statement balance on or prior to its due date and do not incur
finance charges thereon, may lower the amount of Finance Charge Receivables
generated as well as Collections in respect thereof, and may thereby reduce
the Excess Spread and Shared Finance Charge Collections available to replenish
the credit enhancement. See "Description of the Certificates--Allocation of
Funds." Finally, a slowing in payment rates on the Receivables could extend
the final Distribution Date for the Class A Certificates and Class B
Certificates beyond the Scheduled Payment Date for each such class. See "--
Payments and Maturity." The Reallocated Collateral Principal Collections and
the Reallocated Class B Principal Collections may only be utilized to cover
Required Amounts on and prior to the Scheduled Series 1998-1 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. Unless and until Definitive Certificates
are
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issued, Offered Certificate Owners will not be recognized by the Trustee as
Certificate Holders, 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 Certificate Holders indirectly through DTC and its participating
organizations. See "Description of the Certificates--Book-Entry Registration"
and "--Definitive Certificates."
Reports to Certificate Holders. 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 Certificate Holders."
Limitations on Interest Rate Cap Coverage. The Class A Notional Amount of
the Class A Interest Rate Cap will be reduced during the Controlled
Accumulation Period to an amount not less than the Expected Class A Principal.
Any Class A Excess Principal will not have the benefit of the Class A Interest
Rate Cap. The Class B Notional Amount of the Class B Interest Rate Cap will be
reduced to zero on the Class B Scheduled Payment Date. To the extent the Class
B Investor Interest is greater than zero on the Class B Scheduled Payment
Date, the Class B Certificate Holders will not have the benefit of the Class B
Interest Rate Cap. 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 Agency.
THE TRUST
The Trust has been formed in accordance with the laws of the State of New
York pursuant to the Agreement. Prior to its formation, the Trust did not have
any assets or obligations. The Trust has not and will not engage in any
activity, other than as described herein. The Trust will exist only for the
transactions described herein, including the receipt of the Receivables and
holding such Receivables, the issuance of the Exchangeable Transferor
Certificate, the issuance of certificates of other, previously-issued Series,
the issuance of the Certificates and other undivided interests representing
additional Series and related activities (including, with respect to any
Series, receiving any Enhancement and entering into the Enhancement agreement
relating thereto) and making payments thereon. As a consequence, the Trust is
not expected to have any need for additional capital resources.
THE CREDIT CARD BUSINESS OF PEOPLE'S BANK
GENERAL
People's Bank began its credit card program in 1985 by marketing a low
interest rate credit card to highly creditworthy individuals in its market
area. As a result of the initial program's success, People's Bank expanded the
program nationally. The Nilson Report ranked People's Bank the 24th largest
VISA USA, Inc. ("VISA") and MasterCard International Incorporated
("MasterCard") credit card issuer in the United States as of December 1997 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 approximately $170
million as of December 31, 1997. No receivable generated by the United Kingdom
branch will be included in the Trust Portfolio. All of the eligible
receivables in the Trust Portfolio are payable in United States dollars.
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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
in Bridgeport, Connecticut. Certain operations are performed on behalf of
People's Bank by Total System Services, Inc., of Columbus, Georgia ("Total
System"), including 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
cardholders could occur, and the replacement of such services could be time-
consuming. As a result, delays in payments to Certificate Holders 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. Since the May 1, 1996 addition of Additional Accounts, the Trust
Portfolio has included both standard and premium accounts. As of December 31,
1997, 10.95% of the accounts in the Bank Portfolio were premium accounts and
89.05% 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 12.86% and 87.14%, 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 cardholders use credit cards to buy goods and/or
services. A cash advance is made when a credit card is used to obtain cash
from a financial institution or an automated teller machine. Cardholders may
also use convenience checks to (i) transfer balances from other credit card
accounts to their 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, cardholders have been able to purchase insurance covering their
account balances since March 1985. Premiums for this insurance are charged to
the account for each monthly Billing Cycle. Such insurance premiums are
included in the Receivables transferred to the Trust and are treated as
Finance Charge Receivables.
Each cardholder is subject to an agreement with People's Bank governing the
terms and conditions of the VISA or MasterCard credit card account. Pursuant
to each such agreement, except as described herein, People's Bank reserves the
right, subject to fifteen days' prior notice to the cardholder or as may be
required by law, to add to, change or terminate any terms, conditions,
services or features of its VISA or MasterCard credit card accounts at any
time, including increasing or decreasing the periodic finance charges, other
charges or the minimum monthly payment requirements.
The credit evaluation, collection and charge-off policies and servicing
practices of People's Bank, as well as the terms and conditions governing
cardholder agreements in effect as of the date hereof, are under continuous
review and may change at any time in accordance with its business judgment,
applicable law and guidelines established by regulatory authorities.
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Transactions creating the Receivables through the use of 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.
People's Bank, like all institutions that utilize computer technology, is
facing significant challenges associated with the inability of many existing
computer systems to process time-sensitive data accurately beyond the year
1999 (referred to as the "'Year 2000 Issue"). Computer programs that use two-
digit date fields may not properly recognize a date field ending in "00",
which could cause system failures or miscalculations. People's Bank's ability
to process customer transactions or provide customer service could be
adversely affected if such problems were to occur.
People's Bank has conducted a comprehensive review of its computer systems
to identify all systems that could be affected by the Year 2000 Issue, and has
developed an implementation plan to modify or replace all affected systems and
test them for Year 2000 compliance. People's Bank expects programming changes
for mission-critical applications to be completed and testing well under way
by December 31, 1998. Other applications requiring programming changes are
expected to be completed by December 31, 1998 to allow for testing in 1999.
With respect to its credit card operations, People's Bank exchanges data
with, and relies on data supplied by, a number of other entities such as VISA,
MasterCard, Total System, and various credit bureaus. While People's Bank
expects its Year 2000 plan to be completed on a timely basis, there can be no
assurance that the systems of other companies on which People's Bank's systems
may rely also will be completed in a timely fashion.
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 cardholders 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"). The predominant amount of
all national accounts are originated through targeted, prescreened direct-mail
solicitations. 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 cardholders of such accounts is generally comparable to the
remaining Bank Portfolio of accounts.
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.
All applications, including prescreened and direct mail candidates, are
evaluated by utilizing a credit scoring system. The credit scoring model used
by People's Bank was developed with Fair, Isaac
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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 has established a policy that certain
accounts receiving high credit scores may be automatically approved without
judgmental review. Judgmental underwriting of People's Bank's credit card
accounts is used to evaluate those who score below the preset level for
automatic approval and above the preset level for automatic rejection.
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
cardholders based on a credit profile that includes existing indebtedness,
past payment patterns on other consumer loans and certain other criteria. The
response forms of individuals responding to prescreened direct mail
solicitations are reviewed by People's Bank and are checked again through
credit reporting bureaus. If no change in credit performance has occurred, an
offer of credit is made. Generally, each new cardholder is issued a credit
card that expires two years after issuance. People's Bank generally reissues
credit cards with two-year expiration dates, so long as the payment history of
the cardholder satisfies certain criteria.
BILLING AND PAYMENTS
The Bank Portfolio has different billing and payment structures, including
minimum payment levels, annual membership fees and monthly periodic charges.
For purposes of administrative convenience, the VISA and MasterCard credit
card accounts of People's Bank are currently grouped into twenty-two billing
cycles ending on the 5th through 27th day of each month (other than the 24th
day) (each, a "Billing Cycle"). Each Billing Cycle has its own monthly billing
date, at which time the activity in the related accounts during the month
ending on such billing date is processed and billed to accountholders. See
"The Receivables." The Accounts include VISA and MasterCard credit card
accounts in Billing Cycles ending at the close of business on each of the days
referred to above. See "The Receivables."
Monthly billing statements are sent to accountholders with either debit or
credit activity during the Billing Cycle. Generally, each month,
accountholders must make at least a minimum payment equal to the greater of
(i) 3% of the account balance and (ii) $10, plus any past due amount;
provided, however, that if the remaining balance is less than $10, the minimum
payment will be equal to the amount of such remaining balance.
The monthly periodic finance charges assessed on cash advances and
convenience checks are calculated by multiplying the average daily cash
advance balance by the applicable monthly periodic rate. Monthly periodic
finance charges are calculated on cash advances (including unpaid finance
charges) from the date of the transaction or, if a convenience check is used,
the day the convenience check is posted to the cardholder's account. The
monthly periodic finance charges assessed on purchases are calculated by
multiplying the average daily purchase balance by the applicable monthly
periodic rate. Monthly periodic finance charges are calculated on purchases
(including certain fees and
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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.
The current fixed annual percentage rate for purchases generally ranges from
11.90% to 13.99%; however, People's Bank offers 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 generally 19.80%.
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."
Under the terms of People's Bank's agreement with each of its cardholders,
People's Bank may change the annual percentage rates applicable to Accounts.
The annual percentage rates and other terms of the cardholder agreements are
continually reviewed by People's Bank, and further changes to annual
percentage rates and such terms may occur based on changes in the law, changes
in the marketplace or prudent business practices. People's Bank expects to
implement further selected changes to annual percentage rates. See "Risk
Factors--Ability to Change Terms of the Receivables."
In addition, People's Bank may, at its option, increase the annual
percentage rates for purchases, balance transfer checks and cash advances for
the accounts of cardholders who fail to make payments by the due date or who
exceed the total credit limit set by People's Bank; however, People's Bank's
current practice is to lower such rates back to the corresponding standard
rates that were in effect upon compliance by such cardholders with the terms
of the accounts (e.g., making timely payments and staying within the credit
limit) for 5 consecutive Billing Cycles.
People's Bank may, at its option, reduce the minimum payment requirements
and monthly periodic finance charges described above for the accounts of
cardholders who are members of Consumer Credit Counseling Services, an
organization which assists financially troubled cardholders with outstanding
credit card balances to devise repayment programs. Such repayment programs
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 programs.
People's Bank generally originates credit card accounts that do not require
payment of an annual membership fee. Some of the accounts may be subject to
annual membership fees and to certain additional fees, including: (i) a late
fee, generally in the amount of $25, 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 $25; 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 cardholders. Pursuant to the terms of the cardholder agreement, People's
Bank may change the terms of such agreement and must give cardholders 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. People's Bank may, pursuant to its
agreements with cardholders, apply payments received on the Accounts to
finance charges, principal balances and other amounts due in the order that it
may elect from time to time.
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
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practice, accountholders that become one to ten days delinquent may be sent a
notice and telephone calls to the accountholder may begin once an account
becomes delinquent. People's Bank uses an automated dialer to telephone
delinquent accountholders. People's Bank also uses the on-line collections
system of Total System and a Fair, Isaac Companies scoring system to analyze
the collection risk on such accounts.
Generally, within 31 days of contractual delinquency, no additional
extensions of credit through such account are authorized and, between 61 and
91 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 cardholders to
extend or otherwise change payment schedules, which can include the suspension
of finance charge accruals or bringing current (or "reaging") accounts where
cardholders 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
receivables balance less finance charges 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
cardholders. 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"). These Representative
Portfolio tables illustrate the historical performance of the Receivables as
if all Accounts in the Trust as of the Series Cut-Off Date (including the
Additional Accounts added as of February 2, 1998) were included in the Trust
since their origination. In fact, the Transferor has in the past added pools
of Additional Accounts that are about to reprice from an introductory pricing
period. During the introductory pricing period, Accounts generally exhibit
lower levels of yield and loss than do more seasoned Accounts with standard
pricing. As a consequence, the Representative Portfolio tables below show
revenue and loss experience that incorporates the impact of introductory
pricing and newer account loss experience which are not representative of the
Trust Portfolio. The Representative Portfolio tables do not reflect the
Removal that occurred after the Series Cut-Off Date. For a discussion of the
conditions that must be satisfied for a removal of Accounts from the Trust
(including the representation and warranty that no selection procedure
believed to be materially adverse to the interests of the certificate holders
was utilized in selecting the Removed Accounts), see "Description of the
Certificates--Removal of Accounts".
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 cardholders to pay may be
different from those which prevailed during the periods reflected below.
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LOSS EXPERIENCE
REPRESENTATIVE PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Average Receivables Outstanding(1)........ $2,736,113 $2,159,446 $1,649,780
Gross Charge-Offs(2)(3)................... 133,709 99,542 56,101
Recoveries(4)............................. 12,937 8,589 5,175
Net Charge-Offs(3)........................ 120,772 90,952 50,926
Net Charge-Offs as Percentage of Average
Receivables Outstanding(3)............... 4.41% 4.21% 3.09%
</TABLE>
- --------
(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.
(4) Recoveries have historically been allocated to the Trust on a pro rata
basis. As of September, 1997, People's Bank effected a change in the
methodology for calculating Recoveries. The revised policy treats
Recoveries relating to previously charged-off Trust Receivables as Finance
Charge Receivables.
DELINQUENCY EXPERIENCE
REPRESENTATIVE PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1997 1996 1995
------------------- ------------------- ------------------
NUMBER OF DAYS
DELINQUENT(1) AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------------- -------- ---------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
31 to 60 days.......... $ 31,322 1.06% $ 30,822 1.23% $23,227 1.27%
61 to 90 days.......... 21,037 0.71 19,606 0.78 13,292 0.73
91 to 120 days.......... 16,358 0.55 15,216 0.61 11,397 0.62
121 to 150 days......... 13,416 0.46 12,649 0.50 9,032 0.49
151 to 180 days......... 11,071 0.37 9,808 0.39 7,384 0.40
181 days or greater..... 15,998 0.54 14,666 0.58 10,613 0.58
-------- ---- -------- ---- ------- ----
Total(2).............. $109,202 3.69% $102,767 4.09% $74,945 4.09%
======== ==== ======== ==== ======= ====
</TABLE>
- --------
(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.
Delinquencies and charge-offs as a percentage of the Representative
Portfolio are affected by a variety of factors. Among them are: (i) the rate
of growth of receivables in the Representative Portfolio; (ii) general
economic conditions in the United States and particularly the nationwide rise
in consumer loan delinquencies and the rise in personal bankruptcy filings;
(iii) the seasoning of the accounts in the Representative Portfolio; and (iv)
the creation and inclusion in the Representative Portfolio of a product group
that generated higher revenues and higher losses. This product group
represented approximately $70 million of receivables as of December 31, 1997.
People's Bank will not add additional receivables of this type to the Trust
without rating agency approval.
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The decline in delinquencies in 1997 compared to prior years can be
attributed to the increased rate of growth of Receivables and the increased
percentage of unseasoned accounts in the Representative Portfolio, as well as
tightened credit underwriting criteria. Conversely, the rise in delinquencies
in 1995 and 1996 resulted from lower growth rates and therefore a lower level
of unseasoned accounts in the Representative Portfolio.
The rise in charge-offs since 1995 as a percentage of the Representative
Portfolio is primarily the result of the increased level of consumer loan
delinquencies, the rise of personal bankruptcies nationwide and the overall
seasoning of the Receivables in the Representative Portfolio.
People's Bank believes that conformity with its underwriting procedures (see
"--Underwriting Procedures") will keep the loss and delinquency experience
within historical norms, although there can be no assurance that the loss and
delinquency amounts as a percentage of the Representative Portfolio will
remain at current levels.
RECOVERIES
Recoveries have historically been allocated to the Trust on a pro rata
basis. On September 24, 1997, People's Bank adopted a methodology pursuant to
which the Transferor is required to transfer to the Trust on each Transfer
Date occurring after such date the amount of Recoveries received by the
Servicer during the preceding Monthly Period with respect to the Receivables
in the Trust Portfolio. Recoveries are treated as collections of Finance
Charge Receivables. See "--Loss and Delinquency Experience."
INTERCHANGE
Creditors participating in the VISA and MasterCard associations receive
certain fees as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard systems, a portion of these fees collected in
connection with cardholder charges for merchandise and services is passed from
the banks clearing the transactions for merchants to credit card issuing
banks. These fees currently range from approximately 1.15% to 2.35% 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 Certificate
Holders 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 Certificate Holders. 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
38
<PAGE>
Accounts designated by the Transferor from time to time. The Transferor may
designate additional categories of Automatic Additional Accounts; provided,
however, that the Transferor shall have received notice from each Rating
Agency that such designation will not result in a downgrading or withdrawal of
its rating of any certificates of any Series outstanding. In addition, the
Transferor is required to designate Eligible Additional Accounts as Additional
Accounts (x) to maintain the Transferor Interest such that on any Record Date
the Transferor Interest for the related Monthly Period equals or exceeds 7% or
such higher percentage as may be stated in any Supplement (such percentage,
the "Minimum Transferor Interest") of the average Aggregate Principal
Receivables and (y) to maintain, for so long as certificates of any Series,
including the Certificates, remain outstanding, Aggregate Principal
Receivables in an amount equal to or greater than the Minimum Aggregate
Principal Receivables. The term "Aggregate Principal Receivables" means in the
case of any date of determination, the sum of (i) the aggregate amount of
Principal Receivables and (ii) the amount on deposit in the Excess Funding
Account (exclusive of the amount of any investment earnings thereon), in each
case, as of the end of the last day of the Monthly Period immediately
preceding such date of determination. The "Minimum Aggregate Principal
Receivables" required to be maintained through the designation by the
Transferor of Additional Accounts shall generally be an amount equal to the
sum of the numerators used to calculate the Investor Percentage with respect
to Principal Receivables for each Series. Such amount may be increased by a
Supplement pursuant to which additional Series may be issued. The Transferor
will convey the Receivables then existing or thereafter created under such
Additional Accounts to the Trust. See "Description of the Certificates--
Addition of Accounts." Further, pursuant to the Agreement, the Transferor has
the right (subject to certain limitations and conditions discussed herein) to
remove certain Accounts designated by the Transferor whether such Receivables
are then existing or thereafter created. See "Description of Certificates--
Removal of Accounts." Throughout the term of the Trust, the Accounts from
which the Receivables arise will be the same credit card accounts designated
as Accounts by the Transferor plus any Additional Accounts and Automatic
Additional Accounts and minus any Removed Accounts. As of each date an Account
is added, and on any date Additional Accounts or Automatic Additional Accounts
are added, to the Trust, and on the date any new Receivables are created or
are added to the Trust, as applicable, the Transferor will (or will be deemed
to) represent and warrant to the Trust that the Receivables meet the
eligibility requirements specified in the Agreement. See "Description of the
Certificates--Representations and Warranties."
Some of the Accounts are recently solicited, unseasoned accounts and the
Receivables include Receivables that may be up to 240 days contractually
delinquent. Because the Accounts were selected as of the Series Cut-Off Date,
there can be no assurance that all of the accounts will continue to meet the
eligibility requirements during the life of the Trust. The Receivables in the
Accounts are the unsecured obligations of the cardholders.
The Receivables in the Trust Portfolio as of the Series Cut-Off Date, after
giving effect to Additional Accounts conveyed on February 2, 1998 and the
Removal on March 2, 1998, totaled $2,845,884,791.76. The Accounts had, as of
the close of the December 1997 Monthly Period, an average outstanding balance
of $1,615.92 and an average credit limit of $6,112.06. The percentage of the
aggregate total Receivables balance to the aggregate total credit limit was
26.44%, and the weighted average age of the Accounts was approximately 29
months. As of the close of the December 1997 Monthly Period, cardholders 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 1997 Monthly Period for each of the Accounts (including the
Additional Accounts added February 2, 1998 but excluding the Accounts
designated as Removed Accounts as of March 2, 1998). 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 1997 Monthly Period.
39
<PAGE>
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF OF TOTAL
NUMBER OF TOTAL NUMBER RECEIVABLES
ACCOUNT BALANCE RANGE ACCOUNTS OF ACCOUNTS RECEIVABLES BALANCE BALANCE
--------------------- --------- ------------- ------------------- -----------
<S> <C> <C> <C> <C>
Credit Balance............ 36,050 2.05% $ (4,994,531.92) (0.18%)
Zero Balance.............. 648,261 36.80 0.00 0.00
$0.01-$1,000.00........... 332,525 18.88 127,790,078.74 4.49
$1,000.01-$3,000.00....... 321,530 18.25 627,905,079.25 22.06
$3,000.01-$5,000.00....... 252,073 14.31 996,328,139.56 35.01
$5,000.01-$10,000.00...... 168,432 9.56 1,066,825,698.01 37.49
Over $10,000.00........... 2,723 0.15 32,030,328.12 1.13
--------- ------ ----------------- ------
Total................... 1,761,594 100.00% $2,845,884,791.76 100.00%
========= ====== ================= ======
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
<CAPTION>
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........... 36,123 2.05% $ 9,784,987.71 0.34%
$1,000.01-$2,000.00....... 62,828 3.57 40,338,869.49 1.42
$2,000.01-$3,000.00....... 76,692 4.35 81,544,424.56 2.87
$3,000.01-$4,000.00....... 118,742 6.74 151,380,596.32 5.32
$4,000.01-$5,000.00....... 248,681 14.12 378,059,137.59 13.28
$5,000.01-$10,000.00...... 1,189,048 67.50 2,106,725,387.78 74.03
Over $10,000.00........... 29,480 1.67 78,051,388.31 2.74
--------- ------ ----------------- ------
Total................... 1,761,594 100.00% $2,845,884,791.76 100.00%
========= ====== ================= ======
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
<CAPTION>
PERCENTAGE
PERCENTAGE OF OF TOTAL
PERIOD OF DELINQUENCY NUMBER OF TOTAL NUMBER RECEIVABLES
(DAYS CONTRACTUALLY DELINQUENT) ACCOUNTS OF ACCOUNTS RECEIVABLES BALANCE BALANCE
- ------------------------------- --------- ------------- ------------------- -----------
<S> <C> <C> <C> <C>
Current................... 1,691,964 96.04% $2,616,738,321.76 91.95%
1-30 Days................. 40,481 2.30 122,791,653.17 4.31
31-60 Days................ 9,284 0.53 30,397,690.98 1.07
61 or More Days........... 19,865 1.13 75,957,125.85 2.67
--------- ------ ----------------- ------
Total................... 1,761,594 100.00% $2,845,884,791.76 100.00%
========= ====== ================= ======
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<CAPTION>
PERCENTAGE
PERCENTAGE OF OF TOTAL
NUMBER OF TOTAL NUMBER RECEIVABLES
ACCOUNT AGE ACCOUNTS OF ACCOUNTS RECEIVABLES BALANCE BALANCE
----------- --------- ------------- ------------------- -----------
<S> <C> <C> <C> <C>
0 to 6 Months............. 257,550 14.62% $ 498,587,350.31 17.52%
Over 6 to 12 Months...... 343,178 19.48 502,444,791.28 17.65
Over 12 to 24 Months...... 541,860 30.76 700,278,459.99 24.61
Over 24 to 48 Months...... 323,182 18.35 611,959,375.24 21.50
Over 48 Months............ 295,824 16.79 532,614,814.94 18.72
--------- ------ ----------------- ------
Total................... 1,761,594 100.00% $2,845,884,791.76 100.00%
========= ====== ================= ======
</TABLE>
40
<PAGE>
GEOGRAPHIC DISTRIBUTION BY RECEIVABLES BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF OF TOTAL
NUMBER OF TOTAL NUMBER RECEIVABLES
ACCOUNTS OF ACCOUNTS RECEIVABLES BALANCE BALANCE
--------- ------------- ------------------- -----------
<S> <C> <C> <C> <C>
California............. 170,830 9.70% $ 272,171,792.96 9.57%
Connecticut............ 159,467 9.05 259,389,185.08 9.12
Texas.................. 123,662 7.02 213,889,462.02 7.52
New York............... 118,267 6.71 178,180,978.52 6.26
Florida................ 98,001 5.56 153,095,223.29 5.38
Illinois............... 69,624 3.95 116,803,994.91 4.10
Pennsylvania........... 77,498 4.40 115,519,596.24 4.06
Ohio................... 71,100 4.04 115,258,738.88 4.05
Michigan............... 57,783 3.28 94,891,008.76 3.33
New Jersey............. 57,739 3.28 86,929,395.30 3.05
Other(1)............... 757,623 43.01 1,239,755,415.80 43.56
--------- ------ ----------------- ------
Total................ 1,761,594 100.00% $2,845,884,791.76 100.00%
========= ====== ================= ======
</TABLE>
- --------
(1) Includes the 40 states not listed above, the District of Columbia, and
other jurisdictions, each of which represents less than 3.05% of the total
receivables balance.
MATURITY CONSIDERATIONS
The Agreement provides that the Class A Certificate Holders and the Class B
Certificate Holders 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 Certificate Holders within the time periods stated in the Agreement, (b)
material breaches of certain representations, warranties or covenants of the
Transferor, (c) certain insolvency events involving the Transferor, (d) the
occurrence of a Servicer Default which would have a material adverse effect on
the Certificate Holders, (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 average of the Portfolio Yields for any three
consecutive Monthly Periods to a rate which is less than the average of the
Base Rates for such period, (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 Certificate
Holders on the Class A Scheduled Payment Date. On the Transfer Date during the
Controlled Accumulation
41
<PAGE>
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 Certificate Holders 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 1998-1
Termination Date and the termination of the Trust.
Amounts in the Principal Funding Account are expected to be available to pay
the Class A Investor Interest in full on the Class A Scheduled Payment Date.
Available Investor Principal Collections are expected to be 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 Certificate Holders on the Class A
Scheduled Payment Date and the Class B Investor Interest will be paid to the
Class B Certificate Holders on the Class B Scheduled Payment Date,
respectively, no assurance can be given in this regard. If the amount required
to pay the Class A Investor Interest or the Class B Investor Interest in full
is not available on the Class A Scheduled Payment Date or the Class B
Scheduled Payment Date, respectively, a Pay Out Event will occur and the Rapid
Amortization Period will commence.
"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, $24,500,000; 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 1998-1 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 on each Transfer Date with respect to the
Controlled Accumulation Period prior to the Class A Scheduled Payment Date,
the excess, if any, of the applicable Controlled Deposit Amount for the
immediately preceding Transfer Date over the amount deposited in the Principal
Funding Account as Class A Monthly Principal for such preceding Transfer Date.
Should the Rapid Amortization Period commence, the Certificate Holders 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
42
<PAGE>
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 Certificate Holders 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
Certificate Holders and the commencement of the Rapid Amortization Period,
thus shortening the maturity of the Certificates. Conversely, a significant
decline in the amount of Receivables generated during the Controlled
Accumulation Period or the Rapid Amortization Period could result in an
extension of the final payment of the Certificates. If the maturity of the
Certificates has been shortened at a time when interest rates generally
available are lower than the Certificate Rates, the yield to maturity realized
by the Certificate Holders 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 Certificate Holders
may be lower than if the Certificates had matured when expected and the
Certificate Holders 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.
CARDHOLDER MONTHLY PAYMENT RATES(1)
REPRESENTATIVE PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Lowest............................................ 10.63% 9.30% 9.12%
Highest........................................... 14.75 11.21 11.19
Average(2)........................................ 12.06 10.43 10.03
</TABLE>
- --------
(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
cardholders. There can be no assurance that Principal Collections with respect
to the Trust Portfolio, and thus the rate at which Certificate Holders 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.
43
<PAGE>
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
Certificate Holders on the Class A Scheduled Payment Date and the Class B
Investor Interest will be paid to the Class B Certificate Holders 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, 1997,
1996 and 1995 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,
yields on a billed basis may exceed cash yields as amounts collected on credit
card receivables lag behind amounts billed to cardholders. Conversely, as
delinquencies decrease, cash yields may exceed yields on a billed basis as
amounts collected in a current period may include amounts billed during prior
periods. The yield on both a billed basis 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 cardholders who pay their balances in full each month and do not
incur monthly periodic finance charges.
REVENUE EXPERIENCE
REPRESENTATIVE PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Finance Charges and Fees Billed(1)........ $ 410,739 $ 332,073 $ 263,583
Average Receivables Outstanding(2)........ $2,736,113 $2,159,446 $1,649,780
Yield from Finance Charges and Fees
Billed(3)................................ 15.01% 15.38% 15.98%
</TABLE>
- --------
(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. The new methodology adopted for payment of
Recoveries relating to charged off Receivables in the Trust may favorably
impact future yield levels for the Representative Portfolio by paying more
Recoveries to the Trust than under the previous pro rata payment
methodology.
(2) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(3) Yield from Finance Charges and Fees Billed is calculated as a percentage
of the Average Receivables Outstanding.
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."
44
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Offered Certificates, approximately
$368,927,000 (of which $342,005,300 is attributable to the Class A
Certificates and $26,921,700 is attributable to the Class B Certificates),
before deduction of expenses, will be paid to PSFC, other than $840,612.50
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, 1997 owned 59.6% of the issued and
outstanding common stock of People's Bank. People's Bank is chartered as a
Connecticut stock savings bank, and, as a state chartered non-member bank, is
regulated by the State of Connecticut Department of Banking and by the FDIC.
People's Bank is the largest independent bank in Connecticut, with total
assets of approximately $8.2 billion, total liabilities of approximately $7.5
billion, and total stockholders' equity of approximately $710 million as of
December 31, 1997. At December 31, 1997, People's Bank's Tier 1 leverage
capital ratio was 8.8%, satisfying the minimum ratio of 4.0% 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, 1997 with ratios of 9.8% and
13.1%, respectively. People's Bank's regulatory capital ratios at December 31,
1997 exceeded the FDIC's numeric criteria for classification as a "well
capitalized" institution.
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 1998-1 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 Certificate Holders
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
seven Supplements in connection with the issuance of other Series of
certificates, five of which are currently outstanding, 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
Certificate Holders without charge upon written request. The following summary
describes certain terms of the Agreement (including the Series 1998-1
Supplement) and is qualified in its entirety by reference to the Agreement
(including the Series 1998-1 Supplement).
45
<PAGE>
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 1998-1 Supplement, funds on deposit in any Series accounts established
for the benefit of certificate holders other than the Certificate Holders
pursuant to the related Supplement, funds on deposit and securities held in
the Reserve Account for the benefit of the Class A Certificate Holders, 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 Certificate Holders). 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 Certificate Holders 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.
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 Certificate Holders,
withdrawals from the Reserve Account, Principal Funding Investment Proceeds
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
Certificate Holders 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 Certificate Holders
shall refer to distributions, notices, reports and statements to DTC or Cede,
as the registered holder of the Offered Certificates, as the case may be, for
distribution to Offered Certificate Owners in accordance with DTC procedures.
See "--Book-Entry Registration" and "--Definitive Certificates."
Application has been 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
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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 to 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 Certificate Holder before a
replacement Offered Certificate will be issued. The Certificate Holder will be
required to pay any tax or other governmental charge imposed in connection
with such exchange or replacement and any other expenses (including the fees
and expenses of the Trustee and either the Transfer Agent and Registrar or the
co-transfer agent and co-registrar, as applicable) connected therewith.
DETERMINATION OF LIBOR
The Trustee will determine LIBOR for each Interest Period (as defined below)
following the Initial Interest Period. For purposes of calculating LIBOR,
"London Banking Day" is any day on which commercial banks are open for
business (including dealings in foreign exchange and deposits in U.S. dollars)
in London.
"LIBOR" means, for a specific Interest Period (other than the Initial
Interest Period), the rate for deposits in U.S. dollars for a period equal to
one month (commencing on the first day of an Interest Period) which appears on
Telerate Page 3750 (as defined below) as of 11:00 a.m., London time, on the
LIBOR Determination Date (as defined below) for such Interest Period. If such
rate does not appear on Telerate Page 3750, the rate for such Interest Period
will be determined on the basis of the rates at which deposits in U.S. dollars
are offered by the Reference Banks (as defined below) at approximately 11:00
a.m., London time, on such LIBOR Determination Date to prime banks in the
London interbank market for a period equal to one month (commencing on the
first day of such Interest Period). The Trustee will request the principal
London office of each of the Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for such Interest
Period will be the arithmetic mean of the quotations. If fewer than two
quotations are provided as requested, the rate for such Interest Period will
be the arithmetic mean of the rates quoted by major banks in New York City,
selected by the Trustee, at approximately 11:00 a.m., New York City time, on
the first day of such Interest Period for loans in U.S. dollars to leading
European banks for a period equal to one month (commencing on the first day of
such Interest Period).
"Interest Period" means, with respect to any Distribution Date, a period
from and including the preceding Distribution Date to and including the day
immediately preceding such Distribution Date; provided, however, that the
Initial Interest Period will commence on the Closing Date.
"LIBOR Determination Date" means with respect to any Interest Period, the
second London Banking Day preceding the first day of each Interest Period.
"Reference Banks" means four major banks in the London interbank market
selected by the Trustee.
"Telerate Page 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
The Class A Certificate Rate and the Class B Certificate Rate applicable to
the then current Interest Period and the immediately preceding Interest Period
may be obtained by telephoning the Trustee at its Corporate Trust Office at
(800) 735-7777. The Trustee will cause the Class A Certificate Rate as well as
the amount of Class A Monthly Interest and the Distribution Date applicable to
an Interest Period to be provided to the Luxembourg Stock Exchange as soon as
possible after its determination but in no event later than the first day of
such Interest Period. Such information will also be included in a statement to
the Certificate Holders of record prepared by the Servicer. See "Description
of the Certificates--Reports to Certificate Holders."
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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 Certificate
Holders and the Class B Certificate Holders, respectively.
The notional amount of the Class A Interest Rate Cap (the "Class A Notional
Amount") will at all times be equal to or greater than the amount of the
Expected Class A Principal less the aggregate notional amount of any portions
of the Class A Interest Rate Cap sold on or prior to the date of
determination. 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 9.14% (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 less the aggregate notional amount of any portions of the Class B
Interest Rate Cap sold on or prior to the date of determination. 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 9.34% (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 Adjusted 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 Class A Available Funds or Class B Available Funds, respectively,
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.
General. Lehman Brothers Financial Products Inc. (the "Cap Counterparty"),
is a Delaware corporation and an indirect wholly owned subsidiary of Lehman
Brothers Inc., which acts as one of the
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Class A Underwriters. The Cap Counterparty currently has a long-term credit
rating of "AAA" from Standard & Poor's and Fitch IBCA, Inc. ("Fitch"), and
"Aaa" from Moody's. The Cap Counterparty will provide upon request, without
charge, to each person to whom this Prospectus is delivered, a copy of (i) the
ratings analysis from each of Standard & Poor's, Fitch and Moody's evidencing
those respective long-term credit ratings and (ii) the annual reports of the
Cap Counterparty. Requests for such information should be directed to Client
Services, Lehman Brothers Financial Products Inc., 3 World Financial Center,
12th Floor, New York, New York 10285, telephone (212) 526-1877.
Capitalization of the Cap Counterparty. On November 30, 1997, total assets
of Lehman Brothers Financial Products Inc. were $4,823,788,214, total
liabilities were $4,613,724,170 and total Stockholder's Equity was
$210,064,044.
BOOK-ENTRY REGISTRATION
Offered Certificate Holders 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.
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Because of time zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Cedel Participant or Euroclear Participant on such business day. Cash
received in Cedel or Euroclear as a result of sales of securities by or
through a Cedel Participant or a Euroclear Participant to a DTC Participant
will be received with value on the DTC settlement date but will be available
in the relevant Cedel or Euroclear cash account only as of the business day
following settlement in DTC. See Annex II.
Offered Certificate Owners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interest in, Offered Certificates may do so only through Participants
and Indirect Participants. In addition, Offered Certificate Owners will
receive all distributions of principal and interest on the Offered
Certificates from the Trustee through the Participants who in turn will
receive them from DTC. Under a book-entry format, Offered Certificate Owners
may experience some delay in their receipt of payments, since such payments
will be forwarded by the Trustee to Cede, as nominee for DTC. DTC will forward
such payments to its Participants which thereafter will forward them to
Indirect Participants or Offered Certificate Owners. It is anticipated that
the only "Offered Certificate Holder" (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
Certificate Holders, as such term is used in the Agreement, and Offered
Certificate Owners will only be permitted to exercise the rights of Offered
Certificate Holders indirectly through the Participants who in turn will
exercise the rights of Offered Certificate Holders 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 Certificate Holder 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
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for physical movement of certificates. Transactions may be settled by Cedel in
any of 36 currencies, including United States dollars. Cedel provides to its
Cedel Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedel interfaces with domestic markets
in several countries. As a professional depository, Cedel is subject to
regulations by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of any Series
of certificates. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or
indirectly.
The Euroclear System (the "Euroclear System") was created in 1968 to hold
securities for participants of the Euroclear System ("Euroclear Participants")
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in any of 34 currencies, including United States dollars. The
Euroclear System includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the underwriters of any
Series of certificates. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within the Euroclear System,
withdrawal of securities and cash from the Euroclear System, and 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
Certificate Holder 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.
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Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Offered Certificates among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any
time.
DEFINITIVE CERTIFICATES
The Offered Certificates will be issued in fully registered, certificated
form to Offered Certificate Owners or their nominees ("Definitive
Certificates"), rather than to DTC or its nominee, only if (i) the Transferor
advises the Trustee in writing that DTC is no longer willing or able to
properly discharge its responsibilities as Depository with respect to the
Offered Certificates, and the Trustee or the Transferor is unable to locate a
qualified successor, (ii) the Transferor, at its option, elects to terminate
the book-entry system through DTC or (iii) after the occurrence of a Servicer
Default, Offered Certificate Owners representing not less than 50% of each of
the Class A Investor Interest and the Class B Investor Interest advise the
Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the
best interests of the Offered Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all the Offered Certificate
Owners through Participants of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the definitive certificate representing
the Offered Certificates and instructions for re-registration, the Trustee
will issue the Offered Certificates as Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
holders of the Offered Certificates under the Agreement ("Holders").
Distribution of principal and interest on the Offered Certificates will be
made by the "Paying Agent" (as defined in the Agreement) directly to Holders
of Definitive Certificates in accordance with the procedures set forth herein
and in the Agreement. During the Revolving Period, interest payments, and
during either the Controlled Accumulation Period or the Rapid Amortization
Period, interest and principal payments in respect of the Offered
Certificates, will be made to Offered Certificate Holders 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 Certificate Holders. The Trustee will provide such
notice to registered Offered Certificate Holders 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
initially will be Bankers Trust Company and, in the case of the Class A
Certificates, at the offices of the co-transfer agent and co-registrar in
Luxembourg, which initially will be Bankers Trust Luxembourg, S.A. Holders
electing to transfer or exchange Definitive Certificates will be required to
surrender such Certificates to the Transfer Agent and Registrar (or the co-
transfer agent and co-registrar in Luxembourg, as applicable), accompanied by
a written instrument of transfer in a form satisfactory to the Transfer Agent
and Registrar (or the co-transfer agent and co-registrar, as applicable) and
the Trustee. Upon surrender of such Certificates for transfer or exchange, the
Seller will, subject to the terms of the Agreement, execute and the Trustee
will authenticate and deliver (or, in the case of an exchange, the Transfer
Agent and Registrar or the co-transfer agent and co-registrar, as applicable,
will deliver) Definitive Certificates in the name of the transferee or
transferees or in the name of the exchanging Holder, as the case may be. No
service charge will be imposed for any registration of transfer or exchange,
but the Transfer Agent and Registrar, or the co-transfer agent and co-
registrar in Luxembourg, as applicable, may require payment
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of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith. The Transfer Agent and Registrar, or the co-transfer
agent and co-registrar in Luxembourg, as applicable, 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 5.8275%
per annum and on the Class B Investor Interest at a rate of 6.0275% per annum
during the Initial Interest Period. Interest will be distributed on April 15,
1998, and on each Distribution Date thereafter to Certificate Holders.
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 the Class
A Cap Rate, 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 Certificate Holders, 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
the Class A Cap Rate, (b) the Class A Excess Principal, if any, and (c) the
actual number of days in the related Interest Period divided by 360 (the
"Class A Excess Interest").
In the case of the Class B Certificates, interest will be distributed in the
amount of the sum of (w) the product of (a) the Class B Certificate Rate, (b)
the lesser of the Class B Investor Interest as of the preceding Distribution
Date (or, in the case of the first Distribution Date, the Class B Initial
Investor Interest) after giving effect to all payments, deposits and
withdrawals on such Distribution Date and the Expected Class B Principal as of
the preceding Distribution Date, and (c) the actual number of days in the
related Interest Period divided by 360, plus (x) an amount equal to the
product of (a) the Class B Excess Principal, (b) the lesser of the Class B
Certificate Rate and the Class B Cap Rate, and (c) the actual number of days
in the related Interest Period divided by 360 (clauses (w) and (x)
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 Certificate Holders, 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 the Class B Cap Rate, (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").
Any amounts in respect of distributable interest specified in clause (z)
above in each of the two preceding paragraphs 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.
"Expected Class A Principal" means (a) on each date to and excluding the
first Distribution Date occurring after the Monthly Period in which the
Controlled Accumulation Period commences (the "Initial Class A Accumulation
Date"), the Class A Initial Investor Interest, and (b) on each date thereafter
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through but not including the Class A Scheduled Payment Date, the Class A
Initial Investor Interest less the product of (i) the Controlled Accumulation
Amount and the number of Distribution Dates which have occurred from and
including the Initial Class A 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.
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 Covered 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 Covered 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 Covered 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 Covered 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 Covered Amount, then (i) Reallocated Principal Collections (to the
extent available) will be used to make such payments to the Class A
Certificates, and (ii) Reallocated Collateral Principal Collections (to the
extent available) remaining after such payments to the Class A Certificates
will be used to make such payments to the Class B Certificates.
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Closing Date and ends on
the day before the Controlled Accumulation Period or the Rapid Amortization
Period begins), unless a reduction in the Required Collateral Interest has
occurred, no principal payments will be made to Certificate Holders 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 at the direction
of the Servicer 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 Certificate Holders 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
Certificate Holders. Such amounts in the Distribution Account will be paid to
the Class B Certificate Holders on the Class B Scheduled Payment Date. On each
Transfer Date, if a reduction in the Required Collateral Interest has
occurred,
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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 1998-1 with respect to such Monthly Period.
During the Controlled Accumulation Period, the Trustee at the direction of
the Servicer will 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."
On each Distribution Date with respect to the Rapid Amortization Period, the
Class A Certificate Holders will be entitled to receive the sum of the
Available Investor Principal Collections for the related Monthly Period plus,
if the Rapid Amortization Period commences after the commencement of the
Accumulation Period, the Principal Funding Account Balance, in an amount up to
the Class A Investor Interest until the earliest of the date the Class A
Certificates are paid in full, the Scheduled Series 1998-1 Termination Date
and the termination of the Trust. After payment in full of the Class A
Investor Interest, the Class B Certificate Holders 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 1998-1 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 1998-1 Termination Date) and on the Scheduled Series 1998-1 Termination
Date, the Available Investor Principal Collections until the earliest of the
date the Collateral Interest is paid in full, the Scheduled Series 1998-1
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 each
Determination Date 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 certificate holders 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 certificate holders 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
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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 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
Certificate Holders 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 Certificate Holders and
the Class B Certificate Holders 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 Certificate Holders and
Class B Certificate Holders. 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 Certificate Holders and then to the Class B Certificate
Holders. No payment of interest will be made to the Collateral Interest Holder
on any date until the Class A Required Amount and the Class B Required Amount,
if any, on such date have been paid in full. Certain principal payments
otherwise allocable to the Collateral Interest Holder and, if the foregoing
are insufficient, allocable to the Class B Certificate Holders may be
reallocated to the Class A Certificate Holders, and certain principal payments
otherwise allocable to the Collateral Interest Holder may be reallocated to
the Class B Certificate Holders; 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 Certificate Holders 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 Certificate Holders 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, July 14, 1995, May 1, 1996, October 1, 1996, May 1, 1997,
August 1, 1997, November 1, 1997, and February 2, 1998, 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 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. On March 2, 1998, the
Transferor caused the Trustee to reassign from the Trust to the Transferor the
Receivables arising from certain Removed Accounts designated pursuant to the
Agreement.
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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 February 27, 1998, which list has been
and will be further updated periodically to reflect new Automatic Additional
Accounts and Additional Accounts and the removal of Removed 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 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 certificate
holders 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 certificate holders 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 certificate holders 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
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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 Certificate
Holder 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
1998-1 Supplement) an Investor Exchange by which the certificate holders of
such Series may elect to exchange their certificates for one or more newly
issued Series of certificates upon the satisfaction of certain conditions
specified in the Agreement and the related Supplement. Additionally, certain
Series may be subordinated to other Series, or classes within a Series may
have different priorities. The Series 1998-1 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
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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 Certificate Holders 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 Certificate
Holders are materially adversely affected, and continue to be materially
adversely affected during such period, then the Trustee or Certificate Holders
holding not less than 50% of each of the Class A Investor Interest, the Class
B Investor Interest and the Collateral Interest may give notice to the
Transferor (and to the Trustee in the latter instance) declaring that a Pay
Out Event has occurred, thereby commencing the Rapid Amortization Period. See
"--Pay Out Events."
The Transferor has made and will make upon the execution of each Supplement
representations and warranties to the Trust relating to the Receivables to the
effect, among other things, that (a) as of the closing date of the issuance by
the Trust of the related Series of certificates, each of the Receivables then
existing is an Eligible Receivable (as defined below) and (b) as of the date
of creation of any new Receivable, such Receivable is an Eligible Receivable
and the representation and warranty set forth in clause (b) in the immediately
following paragraph is true and correct with respect to such Receivable. In
the event (i) of a breach of any representation and warranty set forth in this
paragraph, within 60 days, or such longer period as may be agreed to by the
Trustee (but no longer than 120 days), of the earlier to occur of the
discovery of such breach by the Transferor or Servicer or receipt by the
Transferor of written notice of such breach given by the Trustee or any
"Enhancement Provider" (as defined in the Agreement), or, with respect to
certain breaches relating to prior liens, immediately upon the earlier to
occur of such discovery or notice and (ii) that, except with respect to
certain breaches relating to prior liens, as a result of such breach, the
Receivables in the related Accounts are charged off as uncollectible, the
Trust's rights in, to or under such Receivables or their proceeds are impaired
or the proceeds of such Receivables are not available for any reason to the
Trust free and clear of any lien, the Transferor shall accept reassignment of
each Principal Receivable as to which such breach relates (an "Ineligible
Receivable") on the terms and conditions set forth below; provided, however,
that no such reassignment shall be required to be made with respect to such
Ineligible Receivable if, on any day within the applicable period (or such
longer period as may be
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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 Certificate Holders or the Trustee on behalf of Certificate
Holders.
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 Certificate Holders), Recoveries
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 Certificate Holders), 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 Certificate Holders), may direct the
Transferor to accept reassignment of the Trust Portfolio within 60 days of
such notice, or within such longer period specified in such notice (but no
longer than 120 days). The Transferor will be obligated to accept reassignment
of such Receivables on a Distribution Date occurring within such applicable
period. Such reassignment will not be required to be made, however, if at any
time during such applicable period, or such longer period, the representations
and warranties shall then be true and correct in all material respects. The
deposit amount for such reassignment with respect to each Series of
certificates required to be repurchased following such notice, including the
Certificates, will generally be equal to the investor interest of each such
Series on the last day of the Monthly Period preceding the Distribution Date
on which the reassignment is scheduled to be made plus an amount equal to all
interest accrued but unpaid on such certificates at the applicable certificate
rate (less the amounts previously allocated for payment of interest and
principal with respect to each such Series of certificates) through the end of
the interest accrual periods of each such Series. The reassignment deposit
amount shall equal the sum of the reassignment deposits with respect to each
Series then issued and outstanding which is required to be repurchased
following such notice. The payment of such reassignment deposit amount into
the Distribution Account will be considered a prepayment in full of all
Receivables and will be paid in full to the certificate holders of such Series
upon presentation and surrender of their certificates. In the Series 1998-1
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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 Certificate Holders) 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 certificate holders (including the Certificate
Holders) 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 certificate holders.
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 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 Certificate Holders.
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
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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 Certificate Holders, (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 Agency, 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 Agency, that satisfy
certain other conditions and that were added on the initial day of the
addition of such type of Account since the first day of such second preceding
Monthly Period plus the number of Additional Accounts, if any, the Receivables
of which were required to be and have been designated to be added to the Trust
since the first day of such second preceding Monthly Period pursuant to the
next paragraph minus any Removed Accounts removed since the first day of such
second preceding Monthly Period shall not exceed 10% of the number of Accounts
on the first day of such second preceding Monthly Period (the lesser of the
amounts described in clauses (i) and (ii) of this sentence, the "Maximum
Addition Amount"). The Transferor, at its option, may terminate or suspend the
inclusion of Automatic Additional Accounts at any time.
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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 Certificate Holders, was
used in selecting the Additional Accounts and (iv) each Account was an
Eligible Additional Account.
The Transferor anticipates that it may, during the three month period
following the Closing Date, designate additional credit card accounts in the
Bank Portfolio as Additional Accounts or Automatic Additional Accounts meeting
the requirements of the Agreement. These Accounts will have been originated
utilizing the same underwriting criteria as are normally applied to other
Accounts in the Trust Portfolio, although such new Accounts are likely to be
relatively unseasoned, and may include accounts that are still subject to
introductory rates. The Transferor expects that any such addition of
Additional Accounts or Automatic Additional Accounts would not have a material
adverse impact on the performance of the Receivables comprising the Trust
Portfolio.
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
Certificate Holders (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, within five business days (or as soon as is reasonably
practicable) after such removal and reassignment, 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 which is materially adverse to the interests of the
Certificate Holders was utilized by the Transferor 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
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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. The Transferor previously designated
Receivables from certain Accounts for deletion and removal from the Trust and
reassignment to the Transferor on March 2, 1998.
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
Certificate Holder 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 Certificate Holders, 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
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
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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 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
Certificate Holders in the manner provided in the related Supplement. The
Paying Agent shall initially be the Trustee. The Series 1998-1 Supplement
provides for the establishment of a Series 1998-1 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 in the name of the Trustee, on behalf of the Trust, a
segregated trust account, the "Excess Funding Account" for the benefit of the
certificate holders 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 1998-1 ACCOUNTS
The Servicer will establish and maintain with a Qualified Trust Institution
in the name of the Trustee for the benefit of the Certificate Holders, two
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" and the "Principal Account." The Servicer will also establish a
"Distribution Account" (a non-interest bearing segregated demand deposit
account established with a Qualified Trust Institution). In addition, the
Trustee will establish the Principal Funding Account and the Reserve Account.
See "--Principal Funding Account" and "--Reserve Account" for discussions of
the Principal Funding Account and the Reserve Account, respectively.
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 Certificate Holders. 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.
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The Finance Charge Account, the Principal Account, the Principal Funding
Account, the Reserve Account and the Distribution Account are collectively
referred to as the "Series 1998-1 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 ("Finance Charge
Collections") and, second, as Collections in respect of Principal Receivables
("Principal Collections").
The Investor Percentage will be calculated as follows:
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 (except, in the case of Finance Charge Receivables
and Defaulted Receivables, with respect to the first Monthly Period), 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, 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.
With respect to the first Monthly Period, allocations to Series 1998-1 of
Finance Charge Receivables and Defaulted Accounts from the immediately
preceding Monthly Period described in the preceding sentence will be zero.
Such amounts so allocated will be further allocated between the Class A
Certificate Holders, the Class B Certificate Holders and the Collateral
Interest Holder based on the Class A Floating Allocation, the Class B Floating
Allocation and the Collateral Floating Allocation, respectively. The "Class A
Floating Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage 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
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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 canceled 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. Such amounts so allocated
will be further allocated between the Class A Certificate Holders, the Class B
Certificate Holders and the Collateral Interest Holder based on the Class A
Fixed Allocation, the Class B Fixed Allocation and the Collateral Fixed
Allocation, respectively. The "Class A Fixed Allocation" means, with respect
to any Monthly Period, the percentage equivalent (which percentage 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 other 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 Certificate Holders prior to such date, minus (c)
the excess, if any, of the aggregate amount of Class A Investor Charge-Offs
for all Transfer Dates 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 Certificate Holders 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
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prior Transfer Dates, plus (f) the aggregate amount of Excess Spread and
Shared Finance Charge Collections allocated and available on all prior
Transfer Dates for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c), (d) and (e); provided, however, that the Collateral
Interest may not be reduced below zero.
"Class A Adjusted Investor Interest," for any date of determination, means
an amount equal to the then current Class A Investor Interest minus the
Principal Funding Account Balance, if any, on such date.
"Adjusted Investor Interest," for any date of determination, means an amount
equal to the sum of the Class A Adjusted Investor Interest, the Class B
Investor Interest and the Collateral Interest, in each case as of such date.
As a result of the calculations described above, Finance Charge Collections
received during any Monthly Period will generally be allocated to the
Certificate Holders 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 either (i) 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 (ii) 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
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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 Series 1998-1 will be paid to the Certificate
Holders as a payment in respect of principal, and during the Controlled
Accumulation Period will be deposited in the Principal Funding Account or,
after the Class A Scheduled Payment Date, in the Distribution Account, to the
extent that the Available Investor Principal Collections allocable to the
Investor Interest are insufficient to deposit the applicable Controlled
Deposit Amount (or, in each case, if more than one Series is in amortization,
such funds will be allocated pro rata, based on the aggregate outstanding
principal amount of each such Series on the last day of the applicable
revolving period).
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 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
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Collateral Interest Surplus, such excess will be treated as Shared
Principal Collections and applied as such;
(c) during the Controlled Accumulation Period, an amount equal to the sum
of (i) the applicable Fixed Investor Percentage of the aggregate amount of
such deposits in respect of Principal Collections, together with certain
amounts treated as Principal Collections, including amounts applied with
respect to Investor Default Amounts and Investor Charge Offs (collectively,
the "Principal Allocation"), (ii) any amount of Shared Principal
Collections and (iii) amounts withdrawn from the Excess Funding Account
allocated to the Certificates will be deposited in the Principal Account,
up to, during any Monthly Period, an amount equal to the sum of the
applicable Controlled Deposit Amount and the applicable Collateral Interest
Surplus. On any business day when the amount on deposit in the Principal
Account exceeds the sum of the applicable Controlled Deposit Amount for the
Certificates and the applicable Collateral Interest Surplus, such excess
will be treated as Shared Principal Collections and applied as such; and
(d) during the Rapid Amortization Period, if any, an amount equal to the
applicable Principal Allocation, 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
certificate holders 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 controlled 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
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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) the sum of (x) the product of (i) the lesser of the Class A
Certificate Rate and the Class A Cap Rate (or 5.8275% for the Initial
Interest Period), (ii) the Class A Adjusted Investor Interest
determined as of the preceding Distribution Date (after giving effect
to all payments, deposits and withdrawals made on such Distribution
Date) or, for the Initial Interest Period, the Class A Initial Investor
Interest, and (iii) the actual number of days in the related Interest
Period or the Initial Interest Period divided by 360 (the "Class A
Monthly 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 Covered Amount in respect of which a distribution
to Class A Certificate Holders has not been made, will be deposited in
the Distribution Account for distribution to Class A Certificate
Holders on the next succeeding Distribution Date;
(b) an amount equal to the Class A Monthly Servicing Fee for the
preceding Monthly Period and any accrued and unpaid Class A Monthly
Servicing Fees will be paid to the Servicer;
(c) an amount equal to the Class A Investor Default Amount for the
preceding Monthly Period will be treated as Principal Collections and
will be applied on such Transfer Date in accordance with "--Payments of
Principal" below;
(d) an amount equal to the unreimbursed Class A Investor Charge-Offs
will be treated as Principal Collections and will be applied on such
Transfer Date in accordance with "--Payments of Principal" below; and
(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 Covered 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 6.0275% for the Initial
Interest Period) (ii) the Class B Investor Interest determined as of
the preceding Distribution Date (after giving effect to all payments,
deposits and withdrawals made on such Distribution Date) or, for the
Initial Interest Period, the Class B Initial Investor Interest, and
(iii) the actual number of days in the related Interest Period or the
Initial Interest Period divided by 360 (the "Class B Monthly Cap Rate
Interest"), plus any overdue Class B Monthly Cap Rate Interest in
respect of which a distribution to Class B Certificate Holders has not
been made, will be deposited in the Distribution Account for
distribution to Class B Certificate Holders 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
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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 and to the extent of Excess Spread.
(iii) An amount equal to the Collateral Available Funds with respect to
such Transfer Date will be distributed in the following priority:
(a) an amount equal to the Collateral Interest Monthly Servicing Fee
for the preceding Monthly Period and any accrued and unpaid Collateral
Interest Servicing Fees will be paid to the Servicer; and
(b) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described below.
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class A Floating Allocation of Finance
Charge Collections allocated to the Investor Interest and deposited in the
Finance Charge Account with respect to such Monthly Period, (b) Principal
Funding Investment Proceeds, if any, with respect to the related Transfer
Date, (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
1998-1 Supplement with respect to such Transfer Date and (d) the proceeds from
the sale of all or any portion of the Class A Interest Rate Cap deposited into
the Collection Account during such Monthly Period. "Class B Available Funds"
means, with respect to any Monthly Period, an amount equal to the sum of (a)
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 and (b) the proceeds from the sale of all or any portion
of the Class B Interest Rate Cap deposited into the Collection Account during
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 Amount, (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 Collateral Interest Monthly
Servicing Fee 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
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was at any time overdue, divided by 360, will be deposited in the
Distribution Account for distribution to Class A Certificate Holders 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 Certificate Holders 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
1.0% per annum, or such lesser amount as may be designated in the Loan
Agreement (the "Collateral Rate"), (ii) the Collateral Interest as of the
preceding Distribution Date (after giving effect to all payments, deposits
and withdrawals made on such date) or, for the first Transfer Date, the
Initial Collateral Interest, 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 Certificate Holders 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 Certificate Holders 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;
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(m) an amount equal to the amount of any Class A Excess Interest accruing
during the related Interest Period;
(n) an amount equal to the amount of any Class B Excess Interest accruing
during the related Interest Period;
(o) the balance, if any, will constitute Shared Finance Charge
Collections, to be applied and distributed as described below in "--Shared
Finance Charge Collections";
(p) any amounts remaining after application as Shared Finance Charge
Collections will be applied to the payment of other accrued and unpaid
expenses of the Trust, if any; and
(q) any amounts remaining after application as Shared Finance Charge
Collections and to expenses of the Trust, if any, will be paid to the
Holder of the Exchangeable Transferor Certificate.
Shared Finance Charge Collections. Shared Finance Charge Collections 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 applied to the payment of other
expenses of the Trust, as described in clause (p) above under "--Excess
Spread," and thereafter 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), (j), (k) and (l) 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 Collateral 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 Class B 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";
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(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 Class A Monthly Principal 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 Certificate Holders 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 Certificate
Holders;
(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 Monthly Principal 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 the Class A Monthly Principal will be
deposited in the Distribution Account for distribution to the Class A
Certificate Holders 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 Monthly Principal will be deposited in the
Distribution Account for distribution to the Class B Certificate
Holders on the next succeeding Distribution Date;
(c) after the Class B Investor Interest has been paid in full, an
amount equal to the Collateral Monthly Principal 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 lesser 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.
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"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 Certificate Holders and the
Class B Certificate Holders on such Transfer Date) over the Required
Collateral Interest on such Transfer Date, and (ii) the Available Investor
Principal Collections on such Transfer Date or (b) with respect to any
Transfer Date relating to the Controlled Accumulation Period prior to
repayment in full of the Class B 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 Certificate Holders
and the Class B Certificate Holders on such Transfer Date) over the Required
Collateral Interest on such Transfer Date, and (ii) the Available Investor
Principal Collections remaining after allocations to the Offered Certificates
on such Transfer Date or (c) with respect to any Transfer Date relating to the
Controlled Accumulation Period or the Rapid Amortization Period, beginning
with the Transfer Date on which the Class B Investor Interest has been paid in
full (after taking into account payments to be made on the related
Distribution Date), an amount equal the least of (i) Available Investor
Principal Collections on deposit in the Principal Account (minus the portion
of such Available Investor Principal Collections applied to Class A Monthly
Principal and Class B Monthly Principal on such Transfer Date) and (ii) the
Collateral Interest for such Transfer Date.
Shared Principal Collections. Principal Collections for any Monthly Period
allocated to the Investor Interest will first be used to cover, with respect
to any Monthly Period during the Controlled Accumulation Period, deposits of
the Controlled Deposit Amount to the Principal Funding Account with respect to
the Class A Certificates or of the Class B Investor Interest to the
Distribution Account with respect to the Class B Certificates, and during the
Rapid Amortization Period, the deposit of the Class A Investor Interest and
the Class B Investor Interest to the Distribution Account, and under certain
circumstances during the Revolving Period, the Controlled Accumulation Period
and the Rapid Amortization Period, 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 Certificate Holders
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 certificate holders of other Series, 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
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first to fund the remaining Class A Required Amount, if any, and second to
fund to the remaining Class B Required Amount, if any, and to the extent that
Reallocated Collateral Principal Collections are less than such remaining
Class A Required Amount, Principal Collections allocable to the Class B
Certificates will then be reallocated and applied to fund the remaining Class
A Required Amount. The Collateral Interest will be reduced by the amount of
Reallocated Collateral Principal Collections and Reallocated Class B Principal
Collections applied to fund the Required Amounts. The Class B Investor
Interest will be reduced by the amount of Reallocated Class B Principal
Collections in excess of the Collateral Interest (after giving effect to
reductions for any Collateral Interest Charge-Offs and any Reallocated
Collateral Principal Collections as of the related Distribution Date) applied
to fund the Class A Required Amount.
"Class A Required Amount" for any date means the amount, if any, by which
the Class A Available Funds with respect to the related Monthly Period are
insufficient to pay the Class A Payment Amount for the related date.
"Class A Payment Amount" for any date means the aggregate of (i) the Class A
Monthly Cap Rate Interest with respect to the related Distribution Date and
any Class A Monthly Cap Rate Interest accrued during any prior period and not
distributed to the Class A Certificate Holders, (ii) the Class A Covered
Amount and any Class A Covered Amount accrued during any prior period and not
distributed to the Class A Certificate Holders, (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 and not
distributed to the Class B Certificate Holders, (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
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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 Interest Charge-Offs for the related Transfer Date.
"Reallocated Principal Collections" for any date means Reallocated Class B
Principal Collections and Reallocated Collateral Principal Collections, for
such date, collectively.
DEFAULTED RECEIVABLES; ADJUSTMENTS AND FRAUDULENT CHARGES
On the eighth business day of each month but not later than the tenth
calendar day (and if such day is not a business day, the preceding business
day) (such date, a "Determination Date"), the Servicer will calculate the
Class A Investor Default Amount, the Class B Investor Default Amount and the
Collateral Default Amount for the preceding Monthly Period. The terms "Class A
Investor Default Amount," "Class B Investor Default Amount" and "Collateral
Default Amount" mean, respectively, for any Monthly Period, the product of (a)
the Class A Floating Allocation, the Class B Floating Allocation or the
Collateral Floating Allocation, as the case may be, determined as of the end
of the Monthly Period, (b) the Floating Investor Percentage for Receivables in
Defaulted Accounts and (c) the amount of Defaulted Receivables for such
Monthly Period (the sum of the Class A Investor Default Amount, the Class B
Investor Default Amount and the Collateral Default Amount being sometimes
referred to as the "Investor Default Amount"). The term "Defaulted
Receivables" means, for any Monthly Period, Receivables which in such Monthly
Period were written off as uncollectible in accordance with the Servicer's
policies and procedures for servicing credit card receivables comparable to
the Receivables.
On each Determination Date, if the Class A Investor Default Amount exceeds
the amount of Class A Available Funds, 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 Certificate Holders. If the Class A Investor Interest
has been reduced by the amount of any Class A Investor Charge-Offs, it will be
reimbursed on any Transfer Date (but not by an amount in excess of the
aggregate Class A Investor Charge-Offs) by the
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amount of Class A Available Funds, 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 Class B Available Funds, Excess Spread, Shared Finance Charge
Collections and Reallocated Collateral Principal Collections which are
allocated and available to fund such amount with respect to the Monthly Period
preceding such Determination Date, the Collateral Interest (after giving
effect to reductions for any Collateral Interest Charge-Offs and any
Reallocated Principal Collections as of the related Distribution Date and
after giving effect to any adjustments with respect thereto as described in
the preceding paragraph) will be reduced by the amount of such excess (but not
by more than the Class B Investor Default Amount for such Monthly Period). In
the event that such reduction would cause the Collateral Interest to be a
negative number, the Collateral Interest will be reduced to zero and the Class
B Investor Interest will be reduced by the amount by which the Collateral
Interest would have been reduced below zero (a "Class B Investor Charge-Off").
The Class B Investor Interest will also be reduced by the amount of
Reallocated Class B Principal Collections in excess of the Collateral Interest
(after giving effect to reductions for any Collateral Interest Charge-Offs and
any Reallocated Collateral Principal Collections as of the related
Distribution Date) and the amount of any portion of the Class B Investor
Interest allocated to the Class A Certificates to avoid a reduction in the
Class A Investor Interest. The Class B Investor Interest will thereafter be
reimbursed (but not in excess of the unpaid principal balance of the Class B
Certificates) on any Transfer Date by the amount of Class B Available Funds,
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 and Shared Finance Charge Collections 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 Transferor 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 7.5% of the sum of the
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Class A Adjusted Investor Interest, the Class B Investor Interest and the
Collateral 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, but not less than
$12,000,000; 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 the
Class A Certificates or the Class B Certificates.
PRINCIPAL FUNDING ACCOUNT
Pursuant to the Series 1998-1 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Class A Certificate Holders (the "Principal Funding Account").
During the Controlled Accumulation Period, the Trustee at the direction of the
Servicer will 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."
Funds on deposit in the Principal Funding Account will be invested to the
following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment 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.
RESERVE ACCOUNT
Pursuant to the Series 1998-1 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Class A Certificate Holders (the "Reserve Account"). The
Reserve Account is established to assist with the subsequent distribution of
interest on the Class A Certificates during the Controlled Accumulation
Period. On each Transfer Date from and after the Reserve Account Funding Date,
but prior to the termination of the Reserve Account, the Trustee, acting
pursuant to the Servicer's instructions, will apply Excess Spread allocated to
the Offered Certificates (to the extent described above 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 three 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) .50% of the Class A Investor Interest or (b) any other amount
designated by the Transferor; provided that if such designation is of a lesser
amount, the Transferor
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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
the Class A Certificates or the Class B Certificates 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
1998-1. 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 Class A Available
Funds.
On or before each Transfer Date with respect to the Controlled Accumulation
Period and on the first Transfer Date with respect to the Rapid Amortization
Period, a withdrawal will be made from the Reserve Account, and the amount of
such withdrawal will be deposited in the Finance Charge Account and treated as
Class A Available Funds for such Transfer Date in an amount equal to the
lesser of (a) the Available Reserve Account Amount with respect to such
Transfer Date and (b) the Class A Principal Funding Investment Shortfall with
respect to such Transfer Date; provided that the amount of such withdrawal
will be reduced to the extent that interest and other investment income on
Reserve Account funds are deposited in the Finance Charge Account and treated
as Finance Charge Collections as described in the last sentence of the
immediately preceding paragraph. On each Transfer Date, the amount available
to be withdrawn from the Reserve Account (the "Available Reserve Account
Amount") will be equal to the lesser of the amount on deposit in the Reserve
Account (before giving effect to any deposit to be made to the Reserve Account
on such Transfer Date) and the Required Reserve Account Amount for such
Transfer Date.
The Reserve Account will be terminated upon the earlier to occur of (a) the
termination of the Trust pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (i) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled Payment Date. Upon the termination of the Reserve
Account, all amounts on deposit therein (after giving effect to any withdrawal
from the Reserve Account on such date as described above) will be distributed
to the Collateral Interest Holder for application in accordance with the terms
of the Loan Agreement.
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF TRUST
The Investor Interest will be subject to optional purchase by the Transferor
on any Distribution Date on or after which the Investor Interest is reduced to
an amount less than or equal to 5% of the Initial Investor Interest if certain
conditions set forth in the Agreement are met. The Investor Interest will be
subject to mandatory purchase by the Transferor on the Distribution Date
immediately preceding the Scheduled Series 1998-1 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
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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 with respect to the
Certificates. The net proceeds of such purchase and any such accumulated
amounts will be distributed pro rata to Certificate Holders 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 November
2005 Distribution Date (the "Scheduled Series 1998-1 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 1998-1 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 1998-1 Termination Date, as the final payment of the
Certificates, first, pro rata to the Class A Certificate Holders in an amount
sufficient to pay the Class A Investor Interest in full, second, pro rata to
the Class B Certificate Holders 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 December 2001
Monthly Period and the Controlled Accumulation Period will begin at such time,
unless such date is postponed as described under "--Postponement of Controlled
Accumulation Period" or a Pay Out Event occurs prior to such date. The Rapid
Amortization Period will commence when a Pay Out Event occurs or is deemed to
occur. A Pay Out Event with respect to the Certificates refers to any of the
following events:
(i) failure on the part of the Transferor or the Holder of the
Exchangeable Transferor Certificate (a) to make any payment or deposit on
the date required under the Agreement (or within the applicable grace
period which will not exceed five business days), unless such failure is
due to certain force majeure events, or (b) duly to observe or perform in
any material respect any covenants or agreements of the Transferor, which
in the case of subclause (b) hereof has a
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material adverse effect on the Certificate Holders (which determination
shall be made without regard 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 Certificate Holders for such period;
(ii) any representation or warranty made by the Transferor in the
Agreement, including the Series 1998-1 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
Certificate Holders are materially and adversely affected (which
determination shall be made without regard 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) with respect to any Determination Date, the average of the Portfolio
Yields for the three consecutive Monthly Periods preceding such
Determination Date is a rate which is less than the average of the Base
Rates for such Monthly Periods;
(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 Certificate Holders (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 Certificate Holders 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 Certificate Holders) 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 Certificate Holders or all certificate holders, 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 Certificate
Holders will begin (if they have not already) on the first Distribution Date
in the Monthly Period following the Monthly Period in which such Pay Out Event
occurs. Thus, Certificate Holders may begin receiving distributions of
principal earlier than they otherwise would have, which may shorten the final
maturity of the Certificates.
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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 Certificate
Holders 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 Certificate Holders 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 cardholders, investigating payment
delinquencies, evaluations in relation to increasing credit limits and in
issuing credit cards, providing billing records to cardholders 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 Certificate Holders and on behalf of the Trustee.
SERVICER COVENANTS
In the Agreement, the Servicer covenants with the certificate holders
(including the Certificate Holders) and the Trustee, as to each Receivable and
related Account, that: (a) it will duly fulfill all
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obligations on its part to be fulfilled under or in connection with the
Receivables and the related Accounts, and will maintain in effect all
qualifications required in order to service the Receivables and the related
Accounts, the failure to comply with which would have a material adverse
effect on the certificate holders (including the Certificate Holders); (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 certificate holders
(including the Certificate Holders) 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 certificate holders' interest in such Receivable. If the Holder of the
Exchangeable Seller Certificate 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 Transferor will deposit into the Excess
Funding 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 Certificate Holders if such covenant or warranty of
the Servicer is not satisfied. In either case, the Trust's interest in any
such assigned Receivables, upon each such reassignment or assignment and
transfer, 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 Certificate Holders, certificate holders 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 Certificate Holders, the Class
B Certificate Holders and the Collateral Interest Holder on each Distribution
Date, commencing with the May 1998 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. The Monthly Servicing Fees will be
paid each month from the Finance Charge Account; however, payment thereof will
be made after payment to Certificate Holders 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)
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the Transferor Interest and (b) the weighted average servicing fee percentage
with respect to all Series of certificates.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee, Paying
Agent, Transfer Agent and Registrar and independent accountants and other fees
which are not expressly stated in the Agreement to be payable by the Trust or
the certificate holders 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 certificate holders (including the Certificate Holders), 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 Certificate Holders or the Offered Certificate
Owners for liabilities arising from actions taken by the Trustee at the
request of Certificate Holders, (c) the Trust, the Certificate Holders or the
Offered Certificate Owners for any losses, claims, damages or liabilities
incurred by any Certificate Holder 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
Certificate Holders or the Offered Certificate Owners for any liabilities,
costs or expenses of the Trust, the Certificate Holders 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 Certificate Holders 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 Certificate Holders 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
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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
certificate holders or (ii) such transfer complies with the provisions of the
next succeeding paragraph. The Transferor, in its capacity as the original
holder of the Exchangeable Transferor Certificate, transferred its interest in
the Exchangeable Transferor Certificate to PSFC in accordance with the
requirements described in clause (i) of the preceding sentence, pursuant to an
Assignment and Assumption Agreement dated as of December 15, 1995 by and
between the Transferor and PSFC.
Any person into which, in accordance with the Agreement, the Transferor or
the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Transferor or the Servicer is a party, or
any person succeeding to the business of the Transferor or the Servicer, upon
execution of a supplemental agreement for the assumption of the Transferor's
or Servicer's obligations and delivery of an officer's certificate with
respect to the compliance of the transaction with the applicable provisions of
the Agreement and an opinion of counsel to the effect that such supplemental
agreement is legal, valid and binding, will be the successor to the Transferor
or the Servicer, as the case may be, under the Agreement. The Transferor may
effect any sale, transfer or pledge of the Accounts or any of its obligations
under the Agreement or effect any merger, consolidation or assumption which is
not in accordance with the provisions of the preceding sentence so long as,
among other conditions set forth in the Agreement: (a) the Transferor and
Servicer determine that such event will not be adverse to the interests of the
certificate holders 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 certificate holders 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 certificate
holders 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.
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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
Certificate Holders (which determination shall be made without regard to
whether funds are available in any Enhancement) and which continues
unremedied for a period of 60 days after written notice and continues to
have a material adverse effect on the certificate holders 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 certificate holders
(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 certificate holders from effecting a Service Transfer.
REPORTS TO CERTIFICATE HOLDERS
On each Distribution Date, the Paying Agent will forward to each Certificate
Holder 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 Certificate Holders, the Class B Certificate Holders 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
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of the related Transfer Date, (l) the Accumulation Shortfall for the preceding
Monthly Period, (m) the Principal Funding Investment Proceeds transferred to
the Finance Charge Account on the related Transfer Date, (n) the Class A
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 Amounts, the amount of Reallocated Collateral Principal Collections
and Reallocated Class B Principal Collections to be applied thereto, and any
reductions in the Collateral Interest and the Class B Investor Interest to
satisfy the Class A Required Amount and the Class B Required Amount, as the
case may be, (r) the Available Reserve Account Amount and the Reserve Account
Draw, 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 1999, the
Paying Agent will furnish to each person who at any time during the preceding
calendar year was an Offered Certificate Holder 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 Certificate Holder, 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 Certificate Holders to prepare their tax
returns.
So long as the Class A Certificates are listed on the Luxembourg Stock
Exchange, the Trustee will publish or will cause to be published following
each Distribution Date (including the Scheduled Series 1998-1 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 Certificate Holders" in the prospectus will be
available for review at the main office of the listing agent of the Trust in
Luxembourg.
Notices to Certificate Holders 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 Certificate Holders
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, 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, 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.
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The Agreement provides for delivery to the Trustee, on or before March 31 of
each calendar year, of an annual statement signed by an officer of the
Servicer to the effect that the Servicer has fully performed, or has caused to
be performed, its obligations in all material respects under the Agreement
throughout the preceding year, or, if there has been a default in the
performance of any such obligation in any material respect, specifying the
nature and status of the default.
AMENDMENTS
The Agreement and any Supplement may be amended by the Transferor, the
Servicer and the Trustee, without certificate holder 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 certificate holders 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 certificate holders (pursuant to the Series 1998-1 Supplement, each
Certificate Holder will be deemed to have agreed to the exercise of such
option by the Transferor at such time the Transferor determines to exercise
such options); 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 certificate holder 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 certificate holders 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 certificate holder 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
certificate holders 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
certificate holder of all Series (or with respect to an amendment of a
Supplement, to the applicable Series).
LIST OF CERTIFICATE HOLDERS
Upon written request of certificate holders 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 certificate
holders for its costs and expenses, and having given the Servicer notice that
such request has been made, will afford such certificate holders access during
business hours to the current list of certificate holders of the Trust for
purposes of communicating with other certificate holders with respect to their
rights under the Agreement. The Agreement generally does not provide for any
annual or other meetings of certificate holders. See "--Book-Entry
Registration" and "--Definitive Certificates" above.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor independently represents and warrants in the Agreement that
the transfer of Receivables, Interchange and Recoveries constitutes either a
valid transfer and assignment to the Trust of all right, title and interest of
the Transferor in and to the Receivables, Interchange and Recoveries, except
for the interest of the Transferor as the then current holder of the
Exchangeable Transferor Certificate, or the grant to the Trust of a security
interest in such property. The Transferor also independently represents and
warrants in the Agreement that, in the event the transfer of Receivables,
Interchange and Recoveries by the Transferor to the Trust is deemed to create
a security interest under the Uniform Commercial Code (the "UCC"), as in
effect in the State of New York, there will exist a valid, subsisting and
enforceable first priority perfected security interest in such property in
existence at the time of the formation of the Trust in favor of the Trust and
a valid, subsisting and enforceable first priority perfected security interest
in such property created thereafter in favor of the Trust on and after their
creation, except for certain tax and other customary liens. For a discussion
of the Trust's rights arising from a breach of these warranties, see
"Description of the Certificates--Representations and Warranties."
The Transferor independently represents that the Receivables are "accounts"
or "general intangibles" for purposes of the UCC as in effect in the States of
New York and Connecticut. The transfer and assignment of accounts and the
transfer of accounts and general intangibles as security for an obligation are
covered by Article 9 of the UCC, with the transfer and assignments of accounts
treated in the same fashion as the creation and perfection of a security
interest therein. The filing of an appropriate financing statement is required
to perfect the interest of the Trust therein. Financing statements covering
the Receivables have been filed with the appropriate governmental authority to
protect the interests of the Trust in the Receivables.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after the closing
date of the issuance by the Trust of the initial Series of certificates could
have an interest in such Receivables with priority over the Trust's interest.
Under the Agreement, however, the Transferor represents and warrants that it
has transferred the Receivables to the Trust free and clear of the lien of any
third party. In addition, the Transferor covenants that it will not sell,
pledge, assign, transfer or grant any lien on any Receivable (or any interest
therein) other than to the Trust. A tax or other government lien on property
of the Transferor arising prior to the time a Receivable comes into existence
may also have priority over the interest of the Trust in such Receivable. In
addition, if the FDIC were appointed as receiver of the Transferor, certain
administrative expenses of the receiver or the State of Connecticut Department
of Banking may have priority over the interest of the Trust in such
Receivable.
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
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order, concealment of records or assets, inability to meet obligations, the
incurrence (or likelihood) of losses resulting in depletion of substantially
all of its capital, violations of law likely to cause financial deterioration,
cessation of insured status or undercapitalization of the Transferor).
The FDIA sets forth certain powers that the FDIC in its capacity as
conservator or receiver for the Transferor could exercise. To the extent that
the Transferor has granted a security interest in the Receivables to the
Trust, and that interest was validly perfected before the appointment of the
FDIC as conservator or receiver and before the Transferor's insolvency, was
not taken in contemplation of the insolvency of the Transferor, and was not
taken with the intent to hinder, delay or defraud the Transferor or the
creditors of the Transferor, such security interest should not be subject to
avoidance if the 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 Certificate Holders 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
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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
Certificate Holders. This procedure could be delayed, as described above. If
the only Pay Out Event to occur is either the insolvency of the Transferor or
the appointment of a conservator or receiver for the Transferor, the
conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables, the commencement of the Rapid
Amortization Period and the transfer of servicing obligations from the
Transferor. A conservator or receiver would have the power to cause the early
sale of the Receivables and the early retirement of the Certificates, to
prohibit the continued transfer of Principal Receivables to the Trust, and to
repudiate the servicing obligations of the Transferor. See "Description of the
Certificates--Pay Out Events." In addition, the appointment of a receiver or
conservator could adversely affect the Transferor's ability to repurchase
ineligible Receivables from the Trust or make cash deposits in respect of
credits, adjustments or fraudulent charges and could result in administrative
expenses of the receiver or conservator having priority over the interest of
the Trust in the Receivables.
CONSUMER PROTECTION LAWS
The relationship of the cardholder and credit card issuer is extensively
regulated by federal and state consumer protection laws. With respect to
credit cards issued by the Transferor, the most significant laws include the
federal Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting,
Fair Debt Collection Practice and Electronic Funds Transfer Acts and
applicable state law. These statutes impose disclosure requirements when a
credit card account is advertised, when it is opened, at the end of monthly
Billing Cycles, and at year end. In addition, these statutes limit cardholder
liability for unauthorized use, prohibit certain discriminatory practices in
extending credit, and impose certain limitations on the type of account-
related charges that may be assessed. Cardholders are entitled under these
laws to have payments and credits applied to the credit card accounts
promptly, to receive prescribed notices and to require billing errors to be
resolved promptly. 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 Certificate Holders subject to special treatment under the
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Federal income tax laws (for example, banks and life insurance companies).
Accordingly, investors should consult their own tax advisors regarding
Federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Offered Certificates in their own
particular circumstances. The discussion is generally limited to those persons
who are the initial holders of the Offered Certificates and to investors who
will hold Offered Certificates as capital assets. This discussion is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, the Treasury regulations thereunder, and
published rulings and court decisions in effect (or, in the case of certain
Treasury regulations, that are proposed) as of the date hereof, all of which
are subject to change, possibly retroactively. No ruling on any of the issues
discussed below has been or will be sought from the Internal Revenue Service
(the "IRS") and no assurance can be given that the IRS will not take contrary
positions. It is anticipated that the Trust will not be indemnified for any
Federal income tax that may be imposed upon it, and the imposition of any such
taxes on the Trust could result in a reduction in the amounts available for
distribution to the Offered Certificate Holders.
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.
The Transferor and Offered Certificate Holders 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 Certificate
Holder, 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
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indebtedness secured by the Receivables. Contrary characterizations that could
be asserted by the IRS are described under "--Possible Characterization of
Offered Certificates as Interests 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 CERTIFICATE HOLDERS
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 Certificate Holders in accordance with their
respective methods of tax accounting. The Treasury regulations provide that
qualified stated interest generally includes stated interest that is
"unconditionally payable" at least annually at a single fixed rate or at a
qualified floating or objective variable rate that appropriately takes into
account the length of the interval between payments. Interest is considered
"unconditionally payable" if reasonable legal remedies exist to compel timely
payment or terms and conditions of the debt instrument make the likelihood of
late payment (other than a late payment that occurs within a reasonable grace
period) or nonpayment (ignoring the possibility of nonpayment due to default,
insolvency or similar circumstances) a remote contingency. The Transferor and
PSFC intend to take the position that late payment or nonpayment of stated
interest on the Offered Certificates is a remote contingency, and therefore
that such stated interest constitutes qualified stated interest and (assuming
the Offered Certificates are not issued with a greater than de minimis
discount from par value) the Offered Certificates are not treated as being
issued with original issue discount ("OID"). It is possible, however, that the
IRS would take the position 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 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 Certificate Holder 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. 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 Certificate Holder 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 Certificate Holder at a
premium, such premium will be amortized as an offset to interest income (with
a corresponding reduction in the Offered Certificate Holder'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 Certificate Holder generally will recognize gain or loss in an amount
equal to the difference between the amount realized
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on the sale, exchange or disposition and the Offered Certificate Holder'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 Certificate Holder, increased by any OID or market discount previously
includible in the Offered Certificate Holder'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 Certificate Holder
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 Certificate
Holder 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 Certificate Holder for
more than one year and otherwise will be short-term.
POSSIBLE CHARACTERIZATION OF OFFERED CERTIFICATES AS INTERESTS IN AN
ASSOCIATION TAXABLE AS A CORPORATION OR A PARTNERSHIP
Although, as described above, it is the opinion of Tax Counsel that the
Offered Certificates are properly characterized as debt for Federal income tax
purposes, such opinion is not binding on the IRS or the courts and no
assurance can be given that this characterization would prevail. If the IRS
were to contend successfully that the Offered Certificates were not debt
obligations for Federal income tax purposes, Offered Certificates might be
classified for Federal income tax purposes as interests in an association
taxable as a corporation that owns the Receivables or 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
Certificate Holders and Offered Certificate Holders 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 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
Certificate Holders would generally be treated as dividend income to the
Offered Certificate Holders.
If, alternatively, the Offered Certificates were treated as interests in a
partnership, the income reportable by the Offered Certificate Holders as
partners could differ from the income reportable by the Offered Certificate
Holders as holders of debt obligations. For example, a cash basis Offered
Certificate Holder might be required to report income when it accrued to the
partnership rather than when it is received by the Offered Certificate Holder.
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 Certificate Holder 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.
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FOREIGN INVESTORS
Assuming the Offered Certificates represent debt obligations for Federal
income tax purposes, if interest (including OID) on the Offered Certificates
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 Certificate Holder 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 Certificate Holder that is a nonresident alien, foreign corporation or
foreign estate or trust might be required to file a United States individual
or corporate income tax return and pay tax on its share of partnership income
at regular U.S. rates, including the branch profits tax in the case of an
Offered Certificate Holder that is a corporation, and would be subject to
withholding tax on its share of partnership income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to report annually to the IRS, and to each
Offered Certificate Holder 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 Certificate Holder 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 Certificate Holder fail to provide the required
certification, the Offered Certificate Holder 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 Certificate Holder will depend upon
the provisions of the state tax laws to which the Offered Certificate Holder
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
Certificate Holders 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
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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 Services.
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 Certificate
Holders not otherwise subject to Connecticut tax would not become subject to
such tax solely because of their ownership of the Offered Certificates.
Offered Certificate Holders 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 Certificate
Holder not otherwise subject to taxation in Connecticut could become subject
to Connecticut income taxes as a result of its mere ownership of Offered
Certificates.
If the Offered Certificates are instead treated as ownership interests in an
association taxable as a corporation or a "publicly traded partnership"
taxable as a corporation, then the entity could be subject to Connecticut
income tax. Such taxes could result in reduced distributions to Offered
Certificate Holders. An Offered Certificate Holder 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 Certificate Holders 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 Certificate Holders 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,
including entities whose underlying assets are deemed to include the assets of
one or more employee benefit plans (including without limitation insurance
company general accounts), "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
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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.
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 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. A class of securities will not fail to
be widely held solely because subsequent to the initial offering the number of
independent investors falls below 100 as a result of events beyond the control
of the issuer. 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 independent of the
Transferor and each other 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. It is not expected that the Class B
Certificates will meet the criteria of publicly offered securities, and
accordingly the Class B Certificates may not be acquired with the assets of
any Benefit Plan (including without limitation any insurance company general
account deemed to include 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.
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It should also be noted that the Small Business Job Protection Act of 1996
added new Section 401(c) of ERISA relating to the status of the assets of
insurance company general accounts under ERISA and Section 4975 of the Code.
Pursuant to Section 401(c), the Department of Labor has issued proposed
regulations (the "General Account Regulations") with respect to insurance
policies issued on or before December 31, 1998 that are supported by an
insurer's general account. Section 401(c) also provides that, except in the
case of avoidance of the General Account Regulation and actions brought by the
Secretary of Labor relating to certain breaches of fiduciary duties that also
constitute breaches of state or federal criminal law, until the date that is
18 months after the General Account Regulations become final, no liability
under the fiduciary responsibility and prohibited transaction provisions of
ERISA and Section 4975 of the Code may result on the basis of a claim that the
assets of the general account of an insurance company constitute the assets of
any Benefit Plan. The plan asset status of insurance company separate accounts
is unaffected by new Section 401(c) of ERISA, and separate account assets
continue to be treated as the plan assets of any Benefit Plan invested in a
separate account.
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.
LISTING AND GENERAL INFORMATION
Application has been made to list the Class A Certificates on the Luxembourg
Stock Exchange. In connection with the listing application, the Articles of
Incorporation and By-laws of the Transferor, as well as legal notice relating
to the issuance of the Class A Certificates, will be deposited prior to
listing with the Chief Registrar of the District Court in Luxembourg, where
copies thereof may be obtained upon request. Once the Class A Certificates
have been so listed, trading of the Class A Certificates
may be effected on the Luxembourg Stock Exchange. The Class A Certificates and
the Class B Certificates have been accepted on the Closing Date for clearance
through the facilities of The Depository Trust Company and Cedel Bank, societe
anonyme, and the Euroclear System (ISIN number US710318AN61 with respect to
the Class A Certificates and ISIN number US710318AP10 with respect to the
Class B Certificates and Common Code number 8595364 with respect to the Class
A Certificates and Common Code number 8595372 with respect to the Class B
Certificates).
The transactions contemplated in this Prospectus were authorized by
resolutions adopted by the Transferor on February 5, 1998 and by PSFC on
February 20, 1998.
The Trust has no assets other than those described herein.
Copies of the Agreement, the Series 1998-1 Supplement, the annual report of
independent public accountants, the documents listed under "Available
Information" and the reports to Certificate Holders referred to in the second
paragraph under "Description of Certificates--Reports to Certificate Holders"
will be available at the office of Bankers Trust Luxembourg, S.A. (the
"Listing Agent"), in Luxembourg, whose address is 14 Boulevard F.D. Roosevelt,
Luxembourg City, Luxembourg. Financial information regarding the Transferor is
included in the consolidated financial statements of People's Bank's Annual
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Report and Form 10-K for the fiscal year ended December 31, 1997, which will
be available at the office of the Listing Agent in Luxembourg. People's Bank's
Annual Report and Form 10-K for subsequent fiscal years, and quarterly
reports, including interim financial statements, on Form 10-Q for subsequent
fiscal quarters, also will be available at the office of the Listing Agent in
Luxembourg.
On or prior to each Distribution Date, the Luxembourg Stock Exchange shall
be advised of (i) the Class A Certificate Rate as determined under "Prospectus
Summary--Interest" and "Description of Certificates--Determination of LIBOR,"
for the immediately following Distribution Date, (ii) the amount of interest
to be distributed in respect of the Class A Certificates for the Distribution
Date referred to in (i) above and (iii) the principal amount of the Class A
Certificates that will be outstanding after the principal distribution made on
the Distribution Date on which such report is being furnished. Also, promptly
following each Distribution Date a notice will be published in a daily
newspaper (expected to be the Luxemburger Wort) specifying the information
described above in Items (i) and (ii).
The Certificates, the Agreement and the Series 1998-1 Supplement are
governed by the laws of the State of New York.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated March 24, 1998, 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, for whom
Goldman, Sachs & Co. are acting as representatives, has severally agreed to
purchase, the principal amount of Class A Certificates set forth opposite its
name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS A CERTIFICATES
------------ --------------------
<S> <C>
Goldman, Sachs & Co..................................... $ 85,750,000
J.P. Morgan Securities Inc.............................. 85,750,000
Lehman Brothers Inc..................................... 85,750,000
Salomon Brothers Inc.................................... 85,750,000
------------
$343,000,000
============
</TABLE>
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 0.180% 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 0.125% of the principal amount of the
Class A Certificates to certain brokers and dealers. After the initial public
offering of the Class A Certificates, the public offering price and such
concessions may be changed.
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 0.180% 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 0.125% of the principal amount of the
Class B Certificates to certain brokers and dealers. After the initial public
offering of the Class B Certificates, the public offering price and such
concessions may be changed.
Application has been made to list the Class A Certificates on the Luxembourg
Stock Exchange.
In connection with the offering, the Underwriters may purchase and sell the
Offered Certificates in the open market. These transactions may include over-
allotment and stabilizing transactions and purchases to cover syndicate short
positions created by the Underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the Offered
Certificates; and syndicate short positions involve syndicate sales in excess
of the offering size. The Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker-dealers in
respect of the
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Offered Certificates for their account may be reclaimed by the syndicate if
such Offered Certificates are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Offered Certificates which may be higher than
they would be in the absence of such transactions; and these activities, if
commenced, may be discontinued at any time.
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 (as amended) 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 and other applicable laws and regulations
with respect to anything done by it in relation to the Offered Certificates
in, from and 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 of 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.
The Cap Counterparty, Lehman Brothers Financial Products Inc., is an
indirect wholly owned subsidiary of Lehman Brothers Inc., which is one of the
Class A Underwriters.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Offered Certificates
will be passed upon for the Transferor by William T. Kosturko, General Counsel
to People's Bank. Certain legal matters relating to the Offered Certificates
will be passed upon for the Transferor by Mayer, Brown & Platt, New York, New
York. Certain legal matters relating to the federal tax consequences of the
issuance of the Offered Certificates and certain other matters relating
thereto will be passed upon for the Transferor by Mayer, Brown & Platt, New
York, New York and certain legal matters relating to Connecticut state income
tax consequences will be passed upon for the Transferor by Pullman & Comley,
LLC, Bridgeport, Connecticut, special Connecticut counsel to People's Bank.
Certain legal matters relating to the issuance of the Offered Certificates
will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher &
Flom LLP, New York, New York.
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INDEX OF KEY TERMS
<TABLE>
<S> <C>
Accounts............................................................... 14
Accumulation Period Length............................................. 55
Accumulation Shortfall................................................. 10, 42
Additional Accounts.................................................... 15
Adjusted Investor Interest............................................. 7, 68
Affinity Program Accounts.............................................. 33
Agent Bank Accounts.................................................... 33
Aggregate Principal Receivables........................................ 39
Agreement.............................................................. 4
Amortization Period.................................................... 70
Automatic Additional Accounts.......................................... 15
Available Investor Principal Collections............................... 43, 55
Available Reserve Account Amount....................................... 81
Bank Portfolio......................................................... 32
Base Rate.............................................................. 28
Benefit Plans.......................................................... 98
Billing Cycle.......................................................... 34
Cap Counterparty....................................................... 48
Cede................................................................... 2
Cedel.................................................................. 50
Cedel Participants..................................................... 50
Certificate Holders.................................................... 4
Certificates........................................................... 1, 4
Class A Adjusted Investor Interest..................................... 6, 68
Class A Available Funds................................................ 72
Class A Cap Rate....................................................... 48
Class A Certificate Holders............................................ 4
Class A Certificate Rate............................................... 8
Class A Certificates................................................... 1, 4
Class A Covered Amount................................................. 11, 80
Class A Excess Interest................................................ 8, 53
Class A Excess Principal............................................... 54
Class A Fixed Allocation............................................... 67
Class A Floating Allocation............................................ 66
Class A Initial Investor Interest...................................... 6
Class A Interest Rate Cap.............................................. 5
Class A Investor Charge-Off............................................ 18, 78
Class A Investor Default Amount........................................ 78
Class A Investor Interest.............................................. 6, 67
Class A Monthly Cap Rate Interest...................................... 71
Class A Monthly Interest............................................... 8, 53
Class A Monthly Principal.............................................. 75
Class A Monthly Servicing Fee.......................................... 85
Class A Notional Amount................................................ 48
Class A Payment Amount................................................. 17, 77
Class A Principal Funding Investment Shortfall......................... 11, 80
Class A Required Amount................................................ 17, 77
Class A Scheduled Payment Date......................................... 2, 12
Class A Underwriters................................................... 102
Class B Available Funds................................................ 72
Class B Cap Rate....................................................... 48
</TABLE>
104
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<TABLE>
<S> <C>
Class B Certificate Holders.............................................. 4
Class B Certificate Rate................................................. 9
Class B Certificates..................................................... 1, 4
Class B Excess Interest.................................................. 9, 53
Class B Excess Principal................................................. 54
Class B Fixed Allocation................................................. 67
Class B Floating Allocation.............................................. 66
Class B Initial Investor Interest........................................ 6
Class B Interest Rate Cap................................................ 5
Class B Investor Charge-Off.............................................. 19, 79
Class B Investor Default Amount.......................................... 78
Class B Investor Interest................................................ 7, 67
Class B Monthly Cap Rate Interest........................................ 71
Class B Monthly Interest................................................. 9, 53
Class B Monthly Principal................................................ 75
Class B Monthly Servicing Fee............................................ 85
Class B Notional Amount.................................................. 48
Class B Payment Amount................................................... 18, 77
Class B Required Amount.................................................. 18, 77
Class B Scheduled Payment Date........................................... 2, 12
Class B Underwriters..................................................... 102
Closing Date............................................................. 5
Code..................................................................... 94
Collateral Available Funds............................................... 72
Collateral Default Amount................................................ 78
Collateral Fixed Allocation.............................................. 67
Collateral Floating Allocation........................................... 66
Collateral Interest Charge-Off........................................... 79
Collateral Interest Monthly Servicing Fee................................ 85
Collateral Interest Surplus.............................................. 10, 69
Collateral Interest...................................................... 7, 67
Collateral Interest Holder............................................... 6
Collateral Monthly Interest.............................................. 73
Collateral Monthly Principal............................................. 76
Collateral Rate.......................................................... 73
Collection Account....................................................... 64
Collection Subaccount.................................................... 64
Collections.............................................................. 66
Commission............................................................... 2
Controlled Accumulation Amount........................................... 42
Controlled Accumulation Date............................................. 10
Controlled Accumulation Period........................................... 10
Controlled Deposit Amount................................................ 10, 41
Cooperative.............................................................. 51
Defaulted Accounts....................................................... 66
Defaulted Receivables.................................................... 78
Definitive Certificates.................................................. 52
Depositaries............................................................. 49
Depository............................................................... 46
Determination Date....................................................... 78
Disclosure Document...................................................... 13
Discount Option.......................................................... 64
</TABLE>
105
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<TABLE>
<S> <C>
Discount Percentage.................................................... 64
Distribution Account................................................... 56, 65
Distribution Date...................................................... 2, 8
DOL.................................................................... 99
Dollars................................................................ 3
DTC Participants....................................................... 49
DTC.................................................................... 2, AII-1
Eligible Account....................................................... 61
Eligible Additional Account............................................ 63
Eligible Automatic Additional Account.................................. 62
Eligible Receivable.................................................... 63
Enhancement Provider................................................... 59
Enhancement............................................................ 5
ERISA.................................................................. 22
Euroclear.............................................................. 51
Euroclear Operator..................................................... 51
Euroclear Participants................................................. 51
Euroclear System....................................................... 51
Excess Funding Account................................................. 65
Excess Principal....................................................... 54
Excess Spread.......................................................... 72
Exchange Act........................................................... 2
Exchangeable Transferor Certificate.................................... 6
Exchange............................................................... 13
Expected Class A Principal............................................. 53
Expected Class B Principal............................................. 54
FDIA................................................................... 24
FDIC................................................................... 1, 6
Finance Charge Account................................................. 65
Finance Charge Collections............................................. 65
Finance Charge Receivables............................................. 14
Fitch.................................................................. 49
Fixed Investor Percentage.............................................. 66
Floating Investor Percentage........................................... 66
General Account Regulation............................................. 100
Global Securities...................................................... AII-1
Holder of Exchangeable Transferor Certificate.......................... 6
Holders................................................................ 52
Indirect Participants.................................................. 49
Ineligible Receivable.................................................. 59
Initial Class A Accumulation Date...................................... 53
Initial Collateral Interest............................................ 6
Initial Interest Period................................................ 9
Initial Investor Interest.............................................. 6
Insolvency Event....................................................... 84
Interchange............................................................ 38
Interest Period........................................................ 47
Interest Rate Cap Provider............................................. 5
Interest Rate Caps..................................................... 5
Investor Charge-Off.................................................... 79
Investor Default Amount................................................ 78
Investor Exchange...................................................... 13
</TABLE>
106
<PAGE>
<TABLE>
<S> <C>
Investor Interest...................................................... 7
Investor Percentage.................................................... 7, 66
IRS.................................................................... 94
LIBOR Determination Date............................................... 47
LIBOR.................................................................. 8, 47
Listing Agent.......................................................... 100
Loan Agreement......................................................... 22
London Banking Day..................................................... 47
MasterCard............................................................. 31
Maximum Addition Amount................................................ 62
Minimum Aggregate Principal Receivables................................ 39
Minimum Transferor Interest............................................ 39
Monthly Period......................................................... 7
Monthly Servicer Report................................................ 88
Monthly Servicing Fees................................................. 85
Moody's................................................................ 64
Norwich................................................................ 47
Offered Certificate Holder............................................. 4, 51
Offered Certificate Owners............................................. 2
Offered Certificate Rate............................................... 9
Offered Certificates................................................... 1, 4
OID.................................................................... 95
Participants........................................................... 49
Pay Out Event.......................................................... 41
Paying Agent........................................................... 52
Permitted Investments.................................................. 65
Plan Asset Regulation.................................................. 99
Pool Factor............................................................ 88
Portfolio Yield........................................................ 28
Principal Account...................................................... 65
Principal Allocation................................................... 70
Principal Collections.................................................. 66
Principal Funding Account.............................................. 10, 80
Principal Funding Account Balance...................................... 10, 41
Principal Funding Investment Proceeds.................................. 11, 80
Principal Receivables.................................................. 14
Principal Shortfalls................................................... 76
Principal Terms........................................................ 58
PSFC................................................................... 1, 6, 45
Qualified Institution.................................................. 64
Qualified Substitute Arrangement....................................... 48
Qualified Trust Institution............................................ 65
Rapid Amortization Period.............................................. 12
Rating Agency.......................................................... 30
Reallocated Class B Principal Collections.............................. 78
Reallocated Collateral Principal Collections........................... 78
Reallocated Principal Collections...................................... 78
Receivables............................................................ 1, 5
Record Date............................................................ 46
Recoveries............................................................. 14
Reference Banks........................................................ 47
Removal Date........................................................... 63
</TABLE>
107
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<TABLE>
<S> <C>
Removal.............................................................. 14
Removed Accounts..................................................... 15, 63
Replacement Interest Rate Cap........................................ 48
Representative Portfolio............................................. 36
Required Amounts..................................................... 77
Required Collateral Interest......................................... 19, 76, 79
Required Reserve Account Amount...................................... 80
Reserve Account...................................................... 80
Reserve Account Funding Date......................................... 80
Revolving Period..................................................... 9
RTC Policy Statement................................................. 93
RTC.................................................................. 24
Scheduled Payment Date............................................... 12
Scheduled Series 1998-1 Termination Date............................. 12, 82
Securities Act....................................................... 2, II-3
Series............................................................... 4
Series 1998-1 Accounts............................................... 66
Series 1998-1 Supplement............................................. 4
Series 1998-1........................................................ 4
Series Cut-Off Date.................................................. 14
Service Transfer..................................................... 87
Servicer Default..................................................... 88
Servicer............................................................. 16
Servicing Fee........................................................ 85
Servicing Fee Rate................................................... 85
Shared Finance Charge Collections.................................... 21
Shared Principal Collections......................................... 21
Standard & Poor's.................................................... 64
Supplement........................................................... 13
Tax Counsel.......................................................... 93
Telerate Page 3750................................................... 47
Terms and Conditions................................................. 51
Total System......................................................... 32
Transfer Agent and Registrar......................................... 52
Transfer Date........................................................ 10
Transferor........................................................... 1
Transferor Exchange.................................................. 13
Transferor Interest.................................................. 7
Transferor Percentage................................................ 67
Transferor Servicing Fee............................................. 85
Trust................................................................ 1, 4
Trust Portfolio...................................................... 5, 38
Trustee.............................................................. 4
U.S. Person.......................................................... AII-4
UCC.................................................................. 91
Underwriters......................................................... 102
Underwriting Agreement............................................... 102
VISA................................................................. 31
Year 2000 Issue...................................................... 33
</TABLE>
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<PAGE>
ANNEX I
PRIOR SERIES ISSUED AND OUTSTANDING
The Trust has previously issued seven Series of certificates, two of which
have been repaid in full. The table below sets forth the principal
characteristics of the five Series previously issued by the Trust that are
currently outstanding: the Series 1994-2 Certificates, the Series 1995-1
Certificates, the Series 1996-1 Certificates, the Series 1997-1 Certificates
and the Series 1997-2 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 and outstanding Series.
<TABLE>
<S> <C>
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..................................... LIBOR plus 0.40%
Current Investor Interest.................................... $74,285,714.32
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
Class A Expected Final Distribution Date..................... May 1998
Class B Expected Final Distribution Date..................... June 1998
Scheduled Series 1994-2 Termination Date..................... March 2001
Series Issuance Date......................................... October 27, 1994
SERIES 1995-1
Initial Investor Interest.................................... $400,000,000
Class A Certificate Rate..................................... LIBOR plus 0.20%
Class B Certificate Rate..................................... 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
Class A Expected Final Distribution Date..................... October 2000
Class B Expected Final Distribution Date..................... November 2000
Scheduled Series 1995-1 Termination Date..................... August 2003
Series Issuance Date......................................... March 28, 1995
</TABLE>
AI-1
<PAGE>
<TABLE>
<S> <C>
SERIES 1996-1
Initial Investor Interest................................... $400,000,000
Class A Certificate Rate.................................... LIBOR plus 0.15%
Class B Certificate Rate.................................... 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
Class B Expected Final Distribution Date.................... February 2002
Scheduled Series 1996-1 Termination Date.................... November 2004
Series Issuance Date........................................ July 2, 1996
SERIES 1997-1
Initial Investor Interest................................... $500,000,000
Class A Initial Investor Interest........................... $425,000,000
Class B Initial Investor Interest........................... $33,750,000
Initial Collateral Interest................................. $41,250,000
Current Investor Interest................................... $500,000,000
Class A Certificate Rate.................................... LIBOR plus 0.12%
Class B Certificate Rate.................................... LIBOR plus 0.32%
Controlled Accumulation Amount.............................. $30,357,142.86
Controlled Accumulation Date................................ December 1, 2000
Servicing Fee Rate.......................................... 2.0% per annum
Class A Scheduled Payment Date.............................. February 2002
Class B Scheduled Payment Date.............................. March 2002
Scheduled Series 1997-1 Termination Date.................... October 2004
Series Issuance Date........................................ March 27, 1997
SERIES 1997-2
Initial Investor Interest................................... $500,000,000
Class A Initial Investor Interest........................... $425,000,000
Class B Initial Investor Interest........................... $33,750,000
Initial Collateral Interest................................. $41,250,000
Current Investor Interest................................... $500,000,000
Class A Certificate Rate.................................... LIBOR plus 0.13%
Class B Certificate Rate.................................... LIBOR plus 0.33%
Controlled Accumulation Amount.............................. $30,357,142.86
Controlled Accumulation Date................................ June 1, 2001
Servicing Fee Rate.......................................... 2.0% per annum
Class A Scheduled Payment Date.............................. August 2002
Class B Scheduled Payment Date.............................. September 2002
Scheduled Series 1997-2 Termination Date.................... April 2005
Series Issuance Date........................................ September 24, 1997
</TABLE>
AI-2
<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 1998-1 and Floating Rate Class B Asset Backed Certificates, Series
1998-1 (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.
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.
AII-1
<PAGE>
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
accounts of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued to the Global Securities from and including the last coupon payment
date to and excluding the settlement date, on the basis of actual days elapsed
and a 360 day year. Payment will then be made by the respective Depositary to
the DTC Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's
account. The Global Securities credit will appear the next day (European time)
and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debit
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-
position funds and allow that credit line to be drawn upon the settlement.
Under this procedure, Cedel Participants or Euroclear Participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the
value date. Therefore, in many cases the investment income on the Global
Securities earned during that one day period may substantially reduce or
offset the amount of such overdraft charges, although this result will depend
on each Cedel Participant's or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
Cedel or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date on the basis of
actual days elapsed and a 360 day year. The payment will then be reflected in
AII-2
<PAGE>
the account of the Cedel Participant or Euroclear Participant the following
day, and receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be
the preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in 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 (iv) a trust whose administration is subject to the primary
supervision of a United States court and for which one or more United States
fiduciaries 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.
Further, the U.S. Treasury Department has recently finalized new regulations
that will revise some aspects of the current system for withholding on amounts
paid to foreign persons. Under these regulations, which are generally
effective for payments made on or after January 1, 1999, interest or OID paid
to a beneficial owner of Global Securities that is a non-U.S. Person would
continue to be exempt from U.S. withholding taxes (including backup
withholding) provided that the beneficial owner complies with the new
certification procedures. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
AII-4
<PAGE>
PRINCIPAL OFFICE OF PEOPLE'S BANK
Bridgeport Center
850 Main Street
Bridgeport, CT 06604-4913
TRUSTEE AND AGENT BANK
BANKERS TRUST COMPANY
4 Albany Street
10th Floor
New York, New York 10005
PAYING AGENT AND TRANSFER AGENT
BANKERS TRUST COMPANY
4 Albany Street
10th Floor
New York, New York 10005
LISTING AGENT, PAYING AGENT, CO-TRANSFER AGENT AND CO-REGISTRAR
BANKERS TRUST LUXEMBOURG, S.A.
14 Boulevard F.D. Roosevelt
Luxembourg City
Luxembourg
LEGAL ADVISER TO THE BANK LEGAL ADVISER TO THE UNDERWRITERS
As to United States Law As to United States Law
MAYER, BROWN & PLATT SKADDEN, ARPS, SLATE,
1675 Broadway MEAGHER & FLOM LLP
New York, New York 10019-5820 919 Third Avenue
New York, New York 10022
ACCOUNTANTS TO THE BANK
KPMG PEAT MARWICK LLP
3001 Summer Street
Stamford, CT 06905
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION 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 DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, 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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Reports to Certificate Holders........................................... 2
Available Information.................................................... 2
Other Information........................................................ 3
Prospectus Summary....................................................... 4
Risk Factors............................................................. 24
The Trust................................................................ 31
The Credit Card Business of People's Bank................................ 31
The Receivables.......................................................... 38
Maturity Considerations.................................................. 41
Receivable Yield Considerations.......................................... 44
Use of Proceeds.......................................................... 45
People's Bank............................................................ 45
Description of the Certificates.......................................... 45
Certain Legal Aspects of the Receivables................................. 91
Certain Federal Income Tax Consequences.................................. 93
State and Local Tax Consequences......................................... 97
Certain Employee Benefit Plan Considerations............................. 98
Listing and General Information.......................................... 100
Underwriting............................................................. 102
Legal Matters............................................................ 103
Index of Key Terms....................................................... 104
Annex I Prior Series Issued And Outstanding.............................. AI-1
Annex II Global Clearance, Settlement and Tax Documentation Procedures... AII-1
</TABLE>
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UNTIL JUNE 22, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPAT-
ING 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.
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$370,000,000
PEOPLE'S BANK CREDIT CARD
MASTER TRUST
$343,000,000 FLOATING RATE
CLASS A ASSET BACKED
CERTIFICATES, SERIES 1998-1
$27,000,000 FLOATING RATE
CLASS B ASSET BACKED
CERTIFICATES, SERIES 1998-1
PEOPLE'S BANK
TRANSFEROR AND SERVICER
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PROSPECTUS
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UNDERWRITERS OF THE CLASS A CERTIFICATES
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
LEHMAN BROTHERS
SALOMON SMITH BARNEY
UNDERWRITERS OF THE CLASS B CERTIFICATES
GOLDMAN, SACHS & CO.
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